Analysis of Foreign Direct Investment and Economic Growth

This assignment is a comprehensive analysis of foreign direct investment (FDI) and its effects on economic growth. It utilizes panel data to explore the relationship between FDI, financial development, and economic growth. The study reviews several research papers that examine the impact of FDI on total factor productivity in developing countries, as well as its influence on investment efficiency and product market competition. Additionally, it discusses the role of state investment banks in low-carbon energy finance and how investor sentiment can be used to predict stock prices.

FINANCIAL MARKET AND
INVESTMENT ANALYSIS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Analysing company value of Glaxo Smith Kline Plc........................................................1
B. Listing the assumptions used in valuation of the company...............................................2
C Justification based on valuation method.............................................................................3
D Ascertaining movement of share prices of respective company for a certain period with
considering EMH....................................................................................................................3
E Analysing the unconventional monetary policy tools with consideration of various banks
and financial institution of countries......................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
To assists the investment management process inn an entity there is need to implicate the
professional asset management techniques such as securities of the entity with the stock market
securities. Moreover, there can be implication of portfolio and various financial instrument
which will indicate the changes or variation in the finance health of the entity. In the present
research there will be analysis based Glaxo Smith Kline Plc which a London based
pharmaceutical industry. Report comprises with share prices of this industry as to analyse the
dividend payable by them. Therefore, there will be comparison of marketable securities with
British American Tobacco, Unilever and Altria as well as the suggestions based on improving
share prices in efficient market hypothesis.
A. Analysing company value of Glaxo Smith Kline Plc
In relation with analysing the company value there is need to consider two techniques
which will be helpful in ascertaining the most satisfactory outcomes. Therefore, there will be use
of Dividend discount model and Free cash flow techniques which will be useful for analysing
such data set (Valdyanathan and Krishnakumar, Noonum, 2018). However, it comprises with
analysing the dividend per share of the Glaxo Smith Kline Plc which will be helpful in
determining the adequate analysis over the data set. The implication of such techniques in
analysing company value will be accurate and efficient as to have proper determination of facts.
Book value: 0.70
Dividend Discount Model:
Value of
shares
Dividend per share
discount rate - dividend growth rate
1.60
0.56-1.7
-1.41
Free cash flows:
Particulars 2017
EBIT 1532
Less: Taxes 995
EBIAT 537
Add: depreciation 0
Less: capital expenses 2202
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Less: NWC 10662
Free cash flow -12327
In relation with analysing the company value it can be said that there is needed to have
satisfactory changes into operations which in turn will be effective as to have appropriate
revenue gains. Therefore, in accordance with the valuation of the Glaxo Smith Kline Plc which
insists the implication of Dividend discount model. Therefore, in relation with this model there
has been consideration of dividend per share (Geddes, Schmidt and Steffen, 2018). Thus, it
indicates that the firm has made payments of divided for 1.60 in 2017. Similarly, in accordance
with the discount rate which is 5.65% and the dividend growth rate is 1.698 which is 1.7.
Moreover, the value of share has been analysed as -1.41. On the other side in relation with
analysing the free cash flow of the business there has bee consideration of the various gains and
expenses of the organisation which as reflected the negative cash flow of -12327.
B. Listing the assumptions used in valuation of the company
The implication of dividend discount method and free cash flow for analysing the
outcomes has reflected the most satisfactory analysis over the variables. Therefore, there has
been consideration of all thee relevant facts and figures which bring the reliable outcomes.
However, in relation with analysing the motive behind the use of such techniques is that it brings
the accurate results on with it will be ascertain the approximately what amount is needed to be
payable by the professionals for the dividends (Wójcik, Knight and Pažitka, 2017). It also helps
in determining the discount rate for the future payments will be made to the equity holders of the
organisation.
Moreover, after considering such factors it has been calculated and accurate outcomes
has been derived from such analysis. Similarly, in relation with analysing the respected outcomes
there has been implication of various variables such as EBIT, taxes, depreciation etc. has been
considered in such analysis. Thus, to have the most reliable and appropriate analysis over the
facts it will be helpful to have the adequate reasoning behind it. Free cash flow helpful as it
measures the financial performance of the company which consist of the various variables such
as operating expense of the business deducted from the capital expenditures (Altug and Kabaca,
2017). Therefore, it comprises with the company's financial performance which determines the
property, equipment and other relevant major articles that has transaction in the operating cash
flows.
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C Justification based on valuation method
In relation with analysing and identifying the satisfactory analysis over company value of Glaxo
Smith Kline it can be said that there are various operations which are meant to be done in respect
to make appropriate analysis over the facts (Yang, Zhao and Li, 2018). There has been
consideration of dividend discount model which was helpful in obtaining the accurate analysis
over the share value of the business. Therefore, in relation with such analysis it can be said that
the value of share in the occurrent period is reflecting the negative outcomes (Herzer and
Donaubauer, 2018). Therefore, it can be said that in the current period there is not adequate gains
obtained by the firm in respect to meet the equity holder's expectation.
D Ascertaining movement of share prices of respective company for a certain period with
considering EMH
To analyse the fluctuations in the share price values Unilever from the period 17
February 2017 to and for Altria and British American Tobacco from 28 July 2017. Therefore,
there will be justification based on the fluctuation in share prices of these organisations during
this period (Tori and Onaran, 2017). Therefore, the fluctuation in the share prices will be
ascertained on the basis of EMH theory such as:
Unilever Plc:
Date Adj rate of return
2017-01-31 null
2017-02-28 44.804531 0.00%
2017-03-31 46.319832 3.38%
2017-04-30 48.777966 5.31%
2017-05-31 46.834667 -3.98%
2017-06-30 47.784538 2.03%
2017-07-31 48.472713 1.44%
2017-08-31 48.858017 0.79%
2017-09-30 48.726208 -0.27%
2017-10-31 47.242111 -3.05%
2017-11-30 46.179771 -2.25%
2017-12-31 45.879807 -0.65%
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2018-01-31 42.26548 -7.88%
2018-02-28 43.116974 2.01%
2018-03-31 47.053825 9.13%
2018-04-30 46.572876 -1.02%
2017-01-31
2017-02-28
2017-03-31
2017-04-30
2017-05-31
2017-06-30
2017-07-31
2017-08-31
2017-09-30
2017-10-31
2017-11-30
2017-12-31
2018-01-31
2018-02-28
2018-03-31
2018-04-30
-0.1
-0.05
0
0.05
0.1
0.15
Unilever
rate of return
Justification: On the basis above listed chart which reflects that there has been changes
in the share price value of Unilever since 17 February 2017. Moreover, the analysis will be base
on various measurements it can be said that there has been fluctuations in the share price of
Unilever plc. Moreover, it has been analysed here that the prices are remaining constant and
which does not have many changes in the share prices of Unilever Plc. Further, it can be said that
there are various fluctuations in the share prices of this entity as on 31st May 2017 the downfall
of -3.985 which indicated that during that period there has been reduction in the capital funds of
the business. Similarly, with 1st January 2018 it has recorded the huge fall of the share value
which was -7.88% which indicates that there has been down fall of equity share due to lower
investments and capital generated by the firm (Stoughton, Wong and Yi, 2017). Overall, it can
be said that the share prices are comparatively constant and does not have that many changes
which determines that the shareholders have reliable trust over the entity.
Altria:
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Date Adj rate of return
2017-07-01 null
2017-08-01 61.512276 0
2017-09-01 61.531673 0.03%
2017-10-01 62.972744 2.34%
2017-11-01 66.512634 5.62%
2017-12-01 70.023102 5.28%
2018-01-01 69.595436 -0.61%
2018-02-01 62.283665 -10.51%
2018-03-01 61.660332 -1.00%
2018-04-01 56.110001 -9.00%
2018-05-01 55.27 -1.50%
2018-05-08 55.27 0
2017-07-01
2017-08-01
2017-09-01
2017-10-01
2017-11-01
2017-12-01
2018-01-01
2018-02-01
2018-03-01
2018-04-01
2018-05-01
2018-05-08
-0.12
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
Altria
rate of return
Justification: On the basis of above listed graph which insists that there has been huge
fluctuation in the share value of Altria Plc. Thus, it has been analysed from 28 July 2017 and till
1st January it has the favourable growth and outcomes. Thus, it can be said that during that period
the investors has reliable interest in the organisation (Sullivan and Mackenzie, 2017). On the
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other side considering period after 1st January 2018 that the huge negative fall which indicates
the poor capital managements as well as dividend policies losses trusts among the shareholders
of the firm (Ahmar, 2017).
British American Tobacco:
Date Adj rate of return
2017-07-01 null
2017-08-01 60.099174 0.00%
2017-09-01 61.130863 1.72%
2017-10-01 63.039673 3.12%
2017-11-01 62.285938 -1.20%
2017-12-01 65.574959 5.28%
2018-01-01 67.249908 2.55%
2018-02-01 58.322758 -13.27%
2018-03-01 56.969856 -2.32%
2018-04-01 54.619999 -4.12%
2018-05-01 51.400002 -5.90%
2018-05-08 51.400002 0
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2017-07-01
2017-08-01
2017-09-01
2017-10-01
2017-11-01
2017-12-01
2018-01-01
2018-02-01
2018-03-01
2018-04-01
2018-05-01
2018-05-08
-0.15
-0.1
-0.05
0
0.05
0.1
British American tobacco
rate of return
Justification: On the basis of above mentioned chart which represents the changes in
share value of British American Tobacco from 28 July 2017. However, after monitoring the
changes in the share value of this organisation it has been ascertained that it has drastic changes
in this marketable values which indicates huge variations in the market values (Ayodele and
Maxwell, 2017). In February 2018 the share value of the company has the huge negative
outcomes is of -13.27% which has the huge changes in the share prices that reflects that during
that period the firm has huge downfall due to numbers of shareholders has withdrawn their
invested funds form the banks (Park, Chae and Cho, 2018).
Efficiency market hypothesis:
In accordance with this theory which insists that all the marketable securities are needed
to be traded over their fair value (Agarwal, Ben-David and Yao, 2017). It comprises with the
investment theories which states that it is not possible for the investors to beet the market (Bahri
and et.al., 2017). It is because the existing share value of corporation will present all the relevant
information and the trading in on the basis of their fair value. Therefore, there will no
manipulation of the share prices in the market.
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E Analysing the unconventional monetary policy tools with consideration of various banks and
financial institution of countries
US Federal reserves:
The origin of the unconventional monetary policy in United States is from great recession
with effects of global financial crisis. It was actively affecting the economies and the monetary
system in countries during the period 2007 – 2009. Therefore, the main issues is the incentive
problems in the mortgage market which creates the primary defects in the financial regulatory
structure in US (Guo, Sun and Qian, 2017). Thus, the issues arises mainly due to excessive
amount of sub-prime mortgages over real estate has been facilitated to the consumers on lowest
interest rates., therefore, this is due to influences of higher competition among the banks and
financial institutions in relation with making improvements in their sales (The Origins of
Unconventional Monetary Policy in the U.S., 2018). Moreover, this crisis manifested itself in
managing the prices of properties in US, which headed toward mortgage defaults and
dysfunction of financial markets. However, these market are principally marked in Mortgage-
backed securities MBS, which has been enrolled in collateral securities and market derivatives.
UK Bank of England:
In relation with the monetary policies designed by the bank of England in relation with
enhancing the liquidity of the firm with wider collateral, long term responsibilities. Therefore,
the operation of bank lies with making the appropriate revenue retention which in turn will be
helpful as to have more effective and appropriate analysis (The Bank of England's
unconventional monetary policies, 2013). Therefore, it aimed at purchasing the medium and long
terms maturities from the governmental securities which will have appropriate impacts over the
secondary market that will result in well developed and improved market functioning (Armour,
Mayer and Polo, 2017). Therefore, selection of purchase range which in turn will be effective
targets over the banks in terms of giving the small desire to deleverage.
ECB:
In order to analyse the monetary policies of European Central Bank in relation with
overcome from the effects of financial crisis. Moreover, the motive of this banking authority is to
balancing the credit terms in country and making it soother to the investors or traders in with
lending channels of banks (Valdyanathan and Krishnakumar, Noonum, 2018). However, the
8

motive is to manage the monetary circulation in the market as well as bring the favourable gains
or reserves to government.
CONCLUSION
On the basis of above report it can be said that, there has been analysation over the share
value of the organisation Glaxo Smith Kline Plc on the basis of dividend discount model and free
cash flow method. Therefore, the implication of such facts will be helpful in terms of making the
accurate analysis over the revenue gained by the firm during the period. Similarly, There has
been demonstration of fluctuation in the share prices of Unilever, Altira and British American
Tobacco which has been analysed and present with the reliable reason behind it.
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REFERENCES
Books and Journals
Agarwal, S., Ben-David, I. and Yao, V., 2017. Systematic mistakes in the mortgage market and
lack of financial sophistication. Journal of Financial Economics, 123(1), pp.42-58.
Ahmar, A.S., 2017. Sutte Indicator: A technical indicator in stock market.
Altug, S. and Kabaca, S., 2017. Search frictions, financial frictions, and labor market
fluctuations in emerging markets. Emerging Markets Finance and Trade. 53(1). pp.128-
149.
Armour, J., Mayer, C. and Polo, A., 2017. Regulatory sanctions and reputational damage in
financial markets. Journal of Financial and Quantitative Analysis, 52(4), pp.1429-1448.
Ayodele, A.J. and Maxwell, O.O., 2017. Test of the semi-strong efficiency theory in the
Nigerian stock market: An empirical analysis. Journal of Finance and Accounting, 5(4),
p.139.
Bahri, E. N. A. and et.al., 2017. Foreign Direct Investment, Financial Development and
Economic Growth: A Panel Data Analysis. Jurnal Pengurusan (UKM Journal of
Management). 51.
Geddes, A., Schmidt, T. S. and Steffen, B., 2018. The multiple roles of state investment banks in
low-carbon energy finance: An analysis of Australia, the UK and Germany. Energy
Policy. 115. pp.158-170.
Guo, K., Sun, Y. and Qian, X., 2017. Can investor sentiment be used to predict the stock price?
Dynamic analysis based on China stock market. Physica A: Statistical Mechanics and its
Applications, 469, pp.390-396.
Herzer, D. and Donaubauer, J., 2018. The long-run effect of foreign direct investment on total
factor productivity in developing countries: a panel cointegration analysis. Empirical
Economics, 54(2), pp.309-342.
Park, H.Y., Chae, S.J. and Cho, M.K., 2018. Controlling shareholders’ ownership structure,
foreign investors’ monitoring, and investment efficiency.
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