Table of Contents

Introduction:........................................................................................................................2
Global Financial Crisis and its Impact:...............................................................................3
The required response to the impact:...................................................................................4
Statutory Reserve Requirement:..........................................................................................5
Securing the Funds:.............................................................................................................5
Deficiencies in the Financial Managements system:...........................................................7
Capital Market:....................................................................................................................7
Importance of capital Market:.............................................................................................8
Levels of market efficiency:................................................................................................9
Dividend decision..............................................................................................................11
Conclusion.........................................................................................................................12
References..........................................................................................................................14
Appendix............................................................................................................................15

Question (b) : Examine and analyse the impact of the 2008 global financial crisis on
a business of your choice

Introduction:
The global financial crisis, brewing for a while, really started to show its effects in the
middle of 2007 and into 2008. Around the world stock markets have fallen, large
financial institutions have collapsed or been bought out, and governments in even the
wealthiest nations have had to come up with rescue packages to bail out their financial
systems.
Countries in Asia are increasingly worried about what is happening in the West. A
number of nations urged the US to provide meaningful assurances and bailout packages
for the US economy, as that would have a knock-on effect of reassuring foreign investors
and helping ease concerns in other parts of the world. Tan Chong Motor Holdings Berhad
was incorporated in Malaysia on 14 October 1972 and listed on the Main Board of Bursa
Malaysia Securities Berhad on 4 February 1974. TCMH Group commenced business as a
small motor vehicle distributor in the 1950s and has grown into a conglomerate involved
in a variety of activities ranging from the assembly and marketing of motor vehicles and
autoparts manufacturing to property development and trading in various heavy
machinery, industrial equipment and consumer products, both locally and abroad. Under
a restructuring exercise, the foreign division of TCMH Group represented by the various
business interests of TCMH outside Malaysia was demerged and subsequently listed on
The Stock Exchange of Hong Kong Limited in 1998 under Tan Chong International
Limited while its autoparts division (involved in the manufacturing and distribution of
automotive components) and non-motor division (involved in the distribution of heavy
machinery, cosmetics and undergarments, and tourism related activities) were demerged
and listed on the Main Board of Bursa Malaysia Securities Berhad in 1999 under APM
Automotive Holdings Berhad and Warisan TC Holdings Berhad respectively. After the
de-merger exercise, TCMH Group re-focused on motor business.
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Global Financial Crisis and its Impact:

The global financial crisis is an ongoing issue which put a number of countries into a
recession and the major stock indexes into a downward spiral.
The Stock Exchange of Hong Kong Limited in 1998 under Tan Chong International
Limited, its auto parts division which involved in the manufacturing and distribution of
automotive components and non-motor division which involved in the distribution of
heavy machinery, cosmetics and undergarments, and tourism related activities; were
demerged and listed on the Main Board of Bursa Malaysia Securities Berhad in 1999
under APM Automotive Holdings Berhad and Warisan TC Holdings Berhad respectively.
The Malaysian automobile industry is the main sector in Malaysia and link to the
manufacturing and services sectors. This sector off by importing vehicles and then
progressed to assembly operations and founding of a wide network of automobile
components and parts manufacturers.
Although the global financial crisis, the Malaysian automobile industry was good enough
compared to others where the total industry volume of new vehicles registered in
Malaysia for 2008 exceeds the MAA forecast of 510,000 units and attained the second
highest in the Malaysian automotive industry history.
The Malaysian automobile industry expected that the Malaysian motor vehicles subsectors will also be affected by the current global economic slowdown as the local
automotive industry is safe in the domestic market. Both Proton and Perdua, the two main
national car companies, have insignificant exposure to global markets at the same time as
domestic demand is only marginally affected with about 7.5% contraction from previous
year. However, the industry is foreseeing a lower total industry volume for 2009 in
relation to the slowing down of the economic growth. The government continues to
support the industry and to undertake measure growth. The government would continue

to support the industry and to undertake measure which would contribute towards
enhancing the business environment in the country.

The required response to the impact:

To start with, In order to reduce the effects from the global economic slowdown, the
Second Stimulus package provides an additional fund of RM200 million injections to the
TCMH Automotive Development Fund to help and promote the development of the
industry that includes the parts and components sectors. It is with the hope that this
industry will continue in the development and production plans, to increase working
capital.
Second, to increase sales of motor vehicles, the government has also provide funds to
support and improve the plan of scrapping old cars. A government policy is to provide a
deduction of RM5,000 to car owner who scraps his car of at least 10 years to purchase
local cars like Proton cars. All this is to develop and strengthen the local automotive
industry.
The Third Stimulus Package given by the government is to increase the import duty by
100% and excise duty by 50% on new Hybrid CBU cars, with engine capacity below 2.0
to be given to franchise importers. This will encourage more of the automobile and its
components manufacturing businesses to be set up and increase the industry growth.
Malaysian companies like Tan Chong Motor Holdings Berhad and Ingress Corporation
Berhad and distributing foreign cars need to lower the profit margin in order to attract
consumers to purchase different kinds of vehicles from their company. In order for them
to sustain in their financing, they have to make more borrowings from banks for many
years (Patrick Hinton, 2009).

Statutory Reserve Requirement:

While the central bank has reduced the overnight policy rate and the statutory reserve
requirement in the first quarter of 2009, this was annulated by the increase in the hirepurchase interest rates for non-national cars by commercial banks in April 2009. These
rates were increased by about 1% to 3.25% for loan tenures of five years and below, 3.4%
for six to seven years and 3.5% for eight to nine-year loans. Furthermore, banks are
getting more cautious and strict in providing hire-purchase loans, leading car buyers to
face difficulties in financing their purchase. As a result, the production and sales of nonnational vehicles and automobile component parts and accessories were affected by these
factors.

Securing the Funds:

TCMHs accountants are responsible for developing financial reports and financial
statement, such as the balance sheet, the income statement, and the statement of cash
flows. Also measures the assist; while managers are responsible for assessing the past
performance and future direction of the company and also in meeting certain legal
obligations, like payment of taxes.

TCMH Financial managers are primarily concerned with the companys cash flows,
because they often determine the feasibility of certain investment and financing
decisions. The financial manager refers to accounting data when making future resource
allocation decisions concerning long-term investments, when managing current
investments in working capital, and when making a number of other financial decisions.
In many small and medium-sized TCMHs the accounting function and the financial
management function may be handled by the same person or group of persons. In such
cases, the distinctions just identified may become blurred.
Many factors influence the magnitude, timing and risk the companys cash flows and thus
the price of the TCMHs stock. Some of these factors are related to the external economic
environment and are largely outside the direct control of managers. Other factors can be
directly manipulated by the managers.
The factors affecting stock prices. The top panel enumerates some of the factors in the
economic environment that have an impact on the strategic decisions managers can make
even though economic environment have an impact on the strategic decisions managers
can make, even though economic environment factors are largely outside decisions
managers can make and even though economic environment factors are largely affect the
policy decisions under the control of management.

Deficiencies in the Financial Managements system:

TCMH financial decisions can improve the amount, timing, or risk profile of a TCMHs
cash flow stream, thus leading to increases in shareholder wealth and value. Financial
managers are not only responsible for measuring value, but also for creating value to the
central elements of financial analysis, planning, and resource allocation decisions. Cash
flows are important because the financial health of a TCMH depends on its ability to
generate sufficient amounts of cash to pay as expenses and to owners. Only cash can be
spent. You cannot spend net income because net income does not reflect the actual cash
inflows and outflows of the TCMH. For example, the accountant records depreciation
expense requires no cash outlay, because the entire cash outflow occurred at the time the
asset was purchased.

Capital Market:

TCMH Capital market plays a crucial role in mobilizing domestic resources and in
channeling theses efficiently to the most productive investments. The level of capital
market development is thus an important determinant of a country's level of savings,
efficiency of investment and ultimately of its rate of economic growth. An efficient
capital market can also provide a range of attractive opportunities to both domestic and
foreign individual and institutional investors. A fully developed capital market offers an
entity many choices for fund raising. Products like commercial paper, convertible bonds,
quasi debt and equity offerings can not be launched unless the country has an enabling
environment under an efficient capital market. Thus the development of Investment
Banking System is directly dependent on the existence of a developed capital market

TCMH Capital markets perform two distinct functions: provision of capital and
facilitation of good governance through information production and monitoring. The
governance function has more impact on the efficiency with which resources are utilized
within the TCMH. Based on industry level data across thirty-eight countries; the
measures of governance are also positively correlated with productivity improvements
and growth in real output. Furthermore, while governance affects efficiency, the capital
provision services induce technological change. The evidence underscores the role of
capital markets as a conduit of socially valuable governance services as distinct from
capital provision.

Importance of capital Market:

TCMH Capital Markets; Money markets deal in short-term securities having maturities
of one year or less and capital markets deal in long-term securities having maturities great
than one year. In both cases, the one-year break point is somewhat arbitrary.
TCMH, an investor who purchases new securities is participating in primary financial
market. Net proceeds from the sale of new securities go directly to the issuing company.
On virtually any given business day, the Wall Street journal contains announcements
about the issuance of new debt and equity securities. A thumb stone announcement for
the sale of new shares of common stock by ARIBA Corporation states that on June 20,
1999, the company issued 5.73 million shares of common stock part of the offering was
sold via the Internet. There is a rapidly growing trend toward Internet stock trading and
distribution of new offerings.

Levels of market efficiency:

There are three levels of market efficiency: the first is weak form efficiency, semistrongfrom efficiency, and strong form efficiency. Weak-Form Efficiency; with Weak-form
market efficiency, no investor can expect to earn excess returns based on an investment
strategy using such information as historical price or return information. All stock market
information, including the record of past stock price changes and stock trading volume, is
fully reflected in the current price of a stock. Tests of the TCMH -form market efficiency
hypothesis have included statistical tests of independence of stock price changes over
time essentially are statistically independent and that a knowledge of past price changes
cannot be used to predict future changes. Other tests have looked for the existence of
longer-term cycles in stock prices, such as monthly or seasonal cycles. In addition,
numerous trading rules based solely on past market price and volume information have
been tested. In a review of much of this research, Pinches has concluded that with some
exceptions, the studies of mechanical trading rules do not indicate that profits can be
generated by these rules. In conclusion, the evidence indicates that US capital markets
are efficient in a weal-form context.
Second, semi-strong form market efficiency, no investor can expect to earn excess returns
based on an investment strategy using any publicly available information.
Announcements of earnings changes, stock splits, dividend changes, interest rate
changes, money supply levels, changes in accounting practices that affect a TCMHs cash
flows, takeover announcement, and so on, are quickly and unbiasedly incorporated in the
price of a security. A finding of semi-strong form market efficiency implies that the
market is also publicly available. Once information is made public in a semi-strong-form
efficient capital market. It is impossible for TCMH investors to be earning excess returns
from transactions based upon this information because the security price will already
reflect the value of this information. Studies of stock splits, new issues, stock listing
announcements, earnings and dividend announcements, stock acquisition announcements,
and announcements of analyst recommendations support the notion of semi-strong-form
market efficiency, at least after the cost of commissions on transactions is considered.
9

There have been a few apparent observed violations of semi-strong form market
efficiency, but in many cases, alternative explanations for these exceptions have been
found. Overall, the evidence on semi-strong form market efficiency tends to support this
level of market efficiency.

Third, strong-form TCMH market efficiency, security prices fully reflect all information,
both public and private. Thus, in strong form efficient capital market profits, including
insiders possessing information about the economic prospects of a TCMH. The existence
of individuals, such as Ivan Boesky, who have traded illegally on the basis of inside
information and have earned phenomenal profits until they were caught and prosecuted
by the Securities and Exchange Commission, provides graphic evidence that strong form
efficiency does not hold.

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Dividend decision:
TCMH dividend policy may be influenced by personal income taxes. When dividends are
paid to common stockholders, these dividends are taxed immediately as income to the
shareholder. If, instead of paying dividend, a TCMH retains and reinvests its earnings, the
price of the stock can be expected to increase. Personal taxes owed on common stock
appreciation are deferred until the stock is sold. The ability to defer personal taxes on
retained earnings causes some investors those in high marginal tax brackets to prefer
retention and reinvestment and ultimately capital gains rather than immediate dividend
payments. This investor preference can have an impact on corporate dividend policy,
particularly in small, closely held companies as shown in Appendix.
Third, valid comparative analysis depends on the availability of data for appropriately
defined industries. Some industry classifications are either too broad or too narrow to be
reliable sources of comparative data when an analyst is evaluating a particular TCMH.
TCMH operate in more than one industry, which makes analysis more difficult. Forth, it
is important to remember that financial ratios provide a historic record, can be used as a
basis for future projections (Desai, Mihir. A. ,2007).
Finally, comparisons of a TCMH ratio with industry norms should be construed as red
flags indicating the need for further investigation not signals of impending doom. On the
other hand, even if a TCMH ratios compare favorably with those of the better.
Performing TCMH in the industry, does not necessarily mean the TCMH is performing
adequately. If, for example, the industry itself is experiencing a declining demand for its
goods and services, favorable ratio comparisons may simply indicate that a TCMH is not
decaying as rapidly as the typical TCMH in the industry. Thus, comparisons of selected
ratios particularly those relating to profitability must be made with national industry

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Conclusion:
According to the study of 2008 economical crisis effect on Malaysian company like
TCMH, if the assumption of no transaction costs for investors is removed, then investors
care whether they are paid cash dividends or receive capital gains. In the economic world,
investors whom own stock paying low or no dividends could periodically sell a portion of
their holdings to satisfy current income requirements. In actually, however, brokerage
charges and odd-lot differentials make such liquidations expensive and imperfect
substitutes for regular dividend payments.
Removal of the no-tax assumption also makes a difference to shareholders. As discussed
earlier, shareholders in high income tax brackets may prefer low dividends and
reinvestment or earnings within the TCMH because of the lower tax rates on capital gains
income and the ability to defer taxes into the future on such income. In his study of
dividend policy from 1920 to 1960, john A, Brittan found evidence in support of this
proposition. In general, he found that rising tax rates tend to reduce dividend payout
rates.
Due to economical crisis the existence of insurance costs on new equity sales also tends
to make earnings retention more desirable. Given a TCMH investment policy, the payout
of earnings the TCMH needs for investment, requires it to raise external equity. External
equity is more expensive, however, because of issuance cost. Therefore, the use of
external equity will raise the TCMHs cost of capital and reduce the value of the TCMH.
In addition, the cost of selling small issues of equity to meet investment needs is likely to
be prohibitively high for most TCMHs. Therefore, TCMHs that have sufficient
investment opportunities to profitably use their retained funds tend to favor retention.

12

It has also been argued that the payment of dividends can reduce agency costs between
shareholders and management. The payment of dividends reduces the amount of retained
earnings available for reinvestment and requires that use of more external equity funds to
finance growth, raising external equity funds in the capital markets subjects in the
company to the scrutiny of regulators and potential investors, thereby serving as the
monitoring function of managerial performance.
Word count: 2895

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References:

Appleyard, D. R., 2005. International economics. London: McGraw-Hill Irwin.

pp22-82.

Eun, Cheol. S., 2007. International financial management. McGraw-Hill/Irwin.

pp56-221.

Hill, Charles W. L., 2008. Global business today. McGraw-Hill Irwin. pp23-62.

Hinton, P., 2009. The start of global financial crisis. [Online]. Available from
http://mortgagesloans.suite101.com/article.cfm/the_start_of_the_global_financial_
crisis_2008

Tadesse, S. 2000. The allocation and monitoring role of capital markets: theory
and

international

evidence.

[Online].

Available

from:

http://fic.wharton.upenn.edu/fic/papers/05/0523.pdf

Tan Lee Ling, 2009. Financial crisis and its impact on Malaysian company.
[Online]. Available from: www.scribd.com/.../financial-crisis-and-its-impact-onmalaysian-company

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Appendix:

Figure 1: TCMH Production

Figure 2: TCMH Products

15

Figure 3: TCMH Gross Dividend

Figure 4: TCMH Revenue

16