MANAGERIAL FINANCE Individual Essay Assignment

You must select one of the following three essay topics. Write on Topic B.

Topic A: Financial statement analysis has long been a major instrument to predict the probability of bankruptcy of firms. However, significant corporate scandals like the bankruptcy of Enrol, Worldcom and Lehman Brothers have revealed that financial statements are not reliable to estimate the firm's default (bankruptcy) risk. Use the supporting evidence from journal articles and discuss whether corporates need a new approach to bankruptcy prediction.

Topic B: Financial market regulators worldwide recently imposed short selling restrictions on financial securities. The primary purpose of this was to curb excess stock price volatility. Discuss if these restrictions successfully achieved their purpose. Use supporting evidence from journal articles together with your own analysis of actual financial market evidence.

Topic C: Negative gearing occurs when an asset (e.g. a house or share portfolio) is financed largely by a loan and the periodic interest payments on the loan exceed the income produced by the asset in the same period (e.g. monthly interest exceeds monthly rent receipts or monthly share dividend yield). Explain the advantages and disadvantages of such arrangements in terms of risk and return, especially in the context of increasingly volatile market conditions. Illustrate your answer with example calculations and references to the journal articles and financial press.