Review Paper

Subject

Seminar in Finance
Submitted To:
Maam Surraya Aslam
Submitted By
S. Asma Gillani

MBK-M-12-43

Aneeka Niaz

MBK-M-12-04

Tanzeela Ikram MBK-M-12-53

MBA (B&F) Morning
7thsemester

Alfalah Institute Of Banking And Finance

Bahauddin Zakariya University
Multan

ORGANIZATIONAL FORMS AND INVESTMENT DECISIONS

INTRODUCTION:
In the present world any kind of activity either it is social i.e. entertainment, educational and
religious or an economic activity i.e. the production of goods and services are carried out by the
different forms of the organizations. These forms include the manufacturing, service, trading,
profit oriented and not for profit organizations. Many types of activities can be performed by
many organizations that cause for the competition among firms for their survival and the
successful organization is the one who provide demanded products to their customers at lower
price with high quality by covering all their costs.
The organizational forms can be differentiated on the basis of the characteristics of customers
that help to clarify the survival of organizational forms in particular activities. This clarity further
help the organization in deciding their investment patterns in different types of resources
required to carry out the activities within each organizational form.
We induce the organizational forms and strategy literatures to hypothesize how different types of
organizational forms will be characterized by differences in incentives and administrative costs
as well as differences in the firms ability to achieve coordinated goals so as to shape their
relative benefits from investing early in the new projects.

RESEARCH QUESTIONS:
Research questions addressing by this study are mentioned as under:
1. What kind of decisions investors made while allocating their funds along different
organization forms?
2. What kind of information they require both from financial and non-financial data in order
to support their investment decision?
3. How investment decisions differ from one organization form to another?
4. What factors investors consider most important while making their investment decisions?
5. How we are use more financial and non-financial evaluation methods since
all investments are expected to show a positive return on investment in different forms of
organization?

RESEARCH OBJECTIVES:
This study has been conducted in order to understand how firms, individuals allocate their funds
across various different organization forms. What rationale and kind of motives are behind such
investment decisions. What kind of constraints and challenges they faced and what kind of
information they require for making investment decisions across various organization forms.

CONTEXT:
This study covers various different organization forms and various different investments made by
financial organizations. This study is broad enough that it covers investments in manufacturing
organizations, service organizations, profit oriented firms, not for profit oriented firms, foreign
direct investment, Foreign Real estate property investments. Each different form has its own
criteria that it demands for investment and therefore requires decision making on different
grounds. The studies on the effects of organizational form on investment decisions are rare.
Basically, the effects of organizational form are difficult to identify because the firms do not
make such decisions casually. Firms choose various options based on what they expect will give
the best return in a given circumstance. This is exactly what the literature of organizational form
and investment decision relies upon and tries to capture.

SIGNIFICANCE:
This study will help information seekers about how financial organizations and individuals make
investment decisions. It is to create awareness among users about approaches adopted by
financial organizations relating to financial investment decisions. What factors they consider
while allocating their funds in different forms of organizations. This study will help them to what
factors they should consider most and about what things they must cautious about while making
investments. What kind of information is more relevant to their investment decision in a specific
organization form? Moreover this study is a contribution to existing literature by adding further
new information relating to organization forms and relevant investment decisions.

LITERATURE REVIEW:
Organizations always search for investment opportunities and establish strategies for profit
development. For example the Operational strategies such as vertical or horizontal integration,
product diversification and internationalization are mostly used by firms (Charles V. Trappey,
Tsui-Yii Shih a, Amy J.C. Trappey, 2006).
Klein, Crawford, and Alchian (1978), Williamson (1979, 1985), Grossman and Hart (1986) said
that the relationship between organizational forms and investment decisions is actually based on
the theory of transection cost and the theory of property rights (Federico Ciliberto, 2006). The
theory of transection cost and the property right theory are based on the assumption that, the
firms cannot write complete contracts concerning their investments. And the investments are
specific to firms assets so that the same investments are less valuable with different assets of
different firms.
Heidi Falkenbach (2015) suggested that the selection of each mode being dependent of the
investors perception of

informational barriers and local nature of property market. Most

investors also apply the same strategy in other markets they invest in, and thus the selection of
the organization mode is not very dependent on the characteristics of the investment market. The
selection of organizational mode for international investments seems to be connected with
amount of markets the investors are exposed to.
International real estate property investments are popularized with growing globalization of
European property markets. Important issues supporting internationalization were strong growth
of the international economies and their competitiveness in beginning of twentieth century, as
well as the developing transparency of the international property markets. Surveys by Worzala
(1994), Newell and Worzala (1995) and McAllister (1999) confirm that primary reasons for
investors to invest in international real estate are diversification and possibilities to achieve
excess returns, other motivating rationales are liability matching, lack of domestic investment
opportunities and support to core business. Possible barriers to international property investment
are taxation, institutional setups, currency risks, problems in creating a well diversifies
international portfolio, cultural and language differences, Information barriers, (Lizieri and
Finlay, 1995), management challenges.
Four modes of organizational choice have been found these are local office that serves
investments, joint office for other property markets in the region, regional office and the central

organization that serves all markets joint ventures partnerships but most popular is the local
office.
Hedy Jiaying Huang and Keith Hooper (2015), Philanthropic grant given to not for profit
organisations is the act of giving financial resources to a cause that aimed to improve general
human well-being, and where the giver expects no direct reciprocation or financial gain in return.
Philanthropic funding is derived from three major sources: trusts and foundations, personal, and
businesses. Grant-making is an inherently risky business, fraught with uncertainty. There is a
growing emphasis on effectiveness, fairness and transparency. Typically start with a predefined
set of policies and processes, receive grant applications for projects, and then assess the applicant
organisation, project viability, and budget.
Investment decisions in not for profit organisations are based on both financial and non financial
information sources. Feaseys (2007) finded that financial statements and audited financial
accounts are the most common types of financial information sought by funders (70 percent of
participants in Feaseys study) in their application forms. He further provided appropriateness of
financial information, based on four principles: efficient operation and good governance,
viability and sustainability, the need for funds, and parallel funding from other funders or the
government. While non-financial information included about the purpose, description, legal
status and community benefit of a project. Other types of information such as certificate of
incorporation, trust deed, national body affiliation, GST status, constitution, population to be
served, anticipated length of project, are not considered to be crucial information to grantmaking processes.
We also get evidence from the hospital industry to investigate that whether organizational
changes affect investment decisions or not (Federico Ciliberto, 2006). The vertically integrated
hospitals, and the hospitals that have joint ventures, add new services at a faster speed than do
self-governing hospitals. So, we can say that the vertical integration and joint ventures
organizational forms are efficiency enhancing, as they prevent hospitals from under investment
in new services (Federico Ciliberto, 2006).
The organizational forms affect investment decisions of the firms because they have different
governance structures, opportunities to raise money, and face more or less different legal
regulation (Igor Buinyi, 2010).

Hedy Jiaying Huang and Keith Hoopers (2015) analyzed that Strategies and key people
involved in such operations are also considered important in grant decision making. In terms of
strategies, two assessment criteria were adopted. They looked for alignment between the
strategies of an NFP organization and their own. They also checked the consistency between an
NFP organisations strategies and programmes.
In order to develop an assessment of the decision situation in service organisations, central
decision makers gather most of their information through social relations in their direct
environment, which constitute their social capital. The relations they maintain affect their
behavior in organizations as well as organizational processes (Bratkovic et al., 2009; Stam and
Elfring, 2008).
Based on review of the recent literature, Papadakis et al. (2010) label research on strategic
decision-making by service organizations as one of the substantive priorities because service
organizations are not necessarily subject to the same processes and factors as manufacturing
organizations and also they constitute for more than 60% of economic activity. This literature
suggested that for who needs to be included when and why in decision-making process,
(Tannenbaum and Schmidt, 1973) and on the selection of participation level given the specific
decision (Vroom and Yetton, 1973). External connections of decision makers are usually
included for the implementation phases. We expect that for decision makers in service SMEs
these connections also play a role in earlier phases of the strategic decision-making process.
FDIs could be seen as growing trend related to development of emerging economies and
increased globalisation (Froot, 1993). Their importance lies in the fact that they are at the most
strategic and risky end of the capital investment spectrum due to complex political, cultural,
economic and legislative considerations that affect FDI decision processes. Inspite of all this the
FDI decision-making process as such, and its organisational and behavioural dimensions, lacks
similar attention (Boddewyn, 1983; Larimo, 1995). The current study will explore the uses of
management accounting information in the FDI process, adopting an alternative strategic
decision-making perspective so that organisational, behavioural and political dimensions of FDI
can be explored.

INNOVATION:
Previous literature on this topic contained issues that were prevailing at that time but in this study
current issues, challenges prevailing right now and faced by investors along with those past
issues are mentioned. By having insight in new prevailing issues investors will be more
facilitated while making their investment decisions. Moreover, previous studies were applicable
on any specific sector organization form but our findings are capable of being apply to any sector
of investment, it has more generalized results because it has covered almost all forms of
organizations.

RESEARCH GAP:
All the Literature based on research in non-listed companies, no study have been conducted on
listed firms. Research in this area has been required in order to have further insight about
investment decisions in different forms of organizations.

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2. Igor Buinyi, 2010, Organizational Form And Investment In Ukrainian Food
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3. Renta Kosov, 2010, Organizational Form and Performance: Evidence from the Hotel
Industry, School of Hotel Administration Cornell University.
4. Rob J.G. Jansen, Petru L. Curseu, Patrick A.M. Vermeulen and Jac L.A. Geurts, 2011,
Social capital as a decision aid in strategic decision-making in service organizations,
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8. Claire Roberts Steven Rowley John Henneberry, (2012), "The impact of landscape
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