CHAPTER 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter of the research presents reviews of foreign and local literatures along

with reviews of foreign and local studies. The resources are taken from books, eBooks,

internet, and theses in connection with the subject matter, written by both foreign and

Filipino authors. This chapter will provide further enhancement of the knowledge and

understanding of the researchers.

Foreign Literature

Michael Carney (2008), in his book entitled, ‘Asian Business Groups: Context,

Governance and Performance’, stated that the definition of group membership is country-

specific, there is no unified approach to recording group affiliation.

China: ‘Business groups are coalitions of firms from multiple industries that interact

the over long periods of time and are distinguished by elaborate inter-firm networks of

lending, trade, ownership, and social relations. The organizational structure of the

business group resembles a conglomerate, but relatively exclusive internal relations

make the group highly stable and resistant to organization’.

India: ‘Group firms in India are often link together through the ownership of equity

shares. In most cases the controlling shareholder is a family’.

Japan: ‘Japanese business groups are best defined as clusters of firms linked

through overlapping ties of shareholding, debt, interlocking directors, and dispatch of

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personnel at other levels, shared history, membership in group wide clubs and councils,

and often shared brands’.

Indonesia: ‘The Indonesian business group is virtually interchangeable with

“conglomerate”. Indonesian business groups are comprised of strategically and

technologically unrelated companies. Regardless of how diversified, they are most

Indonesian business groups are controlled and managed by their founders and the

founders’ families and long-time friends’.

Turkey: ‘A business group is defined as having group members operating in more

than two industries where each industry is assigned a two digit SIC code’.

A variety of different financial intermediaries exists to facilitate the flow of funds

between surplus spending units and deficit spending units. These different financial

intermediaries specialize in the types of deposits they accept (source of funds) and the

types of investments they make (uses of funds).

Commercial Banks accept both demand deposits in the form of checking accounts

and time deposits in the form of savings accounts and certificates of deposit. These funds

are loaned to individuals, business, and governments. Commercial banks are important

source of short-term loans. Seasonal business, such as retailers, certain manufacturers,

some food processors, and builders often require short-term financing to help them

through peak periods. Many other types of business have a more or less continuing need

for short-term financing and make prior arrangements with their banks to borrow on short

notice.

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Banks are also a major source of term loans, which have initial maturities between

1 and 10 years and usually are repaid in installments over the life of the loan. The

proceeds from term-loans can be used to finance current assets, such as inventory or

accounts receivable, and to finance the purchase of fixed plant facilities and equipment,

as well as to repay other debts.

Insurance companies receive periodic or lump-sum premium payments from

individuals or organizations in exchange for agreeing to make certain future contractual

payments. Life insurance companies make payments to a beneficiary based on certain

events, such as death or disability of the insured party. Property and casualty insurance

companies make payments when a financial loss occurs due to such events as fire, theft,

accident, and illness. The premiums received are used to build reserves to pay future

claims. These reserves are invested in various types of assets, such as corporate

securities.

Finance companies obtain funds by issuing their own debt securities and through

loans from commercial banks. These funds are used to make loans to individuals and

business. Some finance companies are formed to finance the sale of the parent

company's products (Moyer, Mcguigan & Kretlow, 2001).

Finance companies cater to the particular needs of the individual borrower and

deliver a highly personalized credit service. Today, finance companies account for over

$1 trillion in assets, which include customer credit, loans to businesses, and mortgages.

They obtain their funds largely through the sale of large-denomination debt securities,

primarily commercial paper for the larger finance companies, and marketable and non-

marketable longer-term bonds and stock for the smaller ones. Additionally, finance

17

companies have lines of credit at commercial banks that can be used to supplement their

primary sources of funds in the event of a need. There are three basic types of finance

companies: firms that specialize in customer credit, firms that specialize in sales finance,

and firms that specialize in small business firm lending.

Sales Finance Companies make loans to both consumers and businesses to

finance the sale of items such as automobiles, pleasure boats, refrigerators and other

consumer durables. Many of the better known sales finance companies are captives of

the dealer or manufacturer of the product sold. For example, General Motors, Ford Motor

Co., Sears, Montgomery Ward, Motorola, and General Electric all have sales finance

companies. The loan contracts are standardized, and the dealer will complete the forms

with the consumer in order to obtain cash from the sales finance company at the

completion of the sale. These companies compete directly with commercial banks, credit

unions, and credit cards, all of which offer alternative sources of financing for consumer

purchases (Babbel & Santomero, 2001).

A firm might, for instance, set a major overall goal of becoming the dominant

producer in its domestic market. It might then develop a marketing objective of achieving

maximum sales penetration in each region, followed by a related pricing objective of

setting prices at levels that maximize sales. These objectives might lead to the adoption

of a low-price policy implemented by offering substantial price discounts to channel

members.

Price affects and is affected by the other elements of the marketing mix. Product

decisions, promotional plans, and distribution choices all impact the price of a good or

service. Basic so-called "fighting brands" are intended to capture market share from

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higher-priced options-laden competitors by offering relatively low prices to entice

customers to give up some options in return for a cost savings.

While pricing objectives vary from firm to firm, they can be classified into four major

groups: (1) profitability objectives, (2) volume objectives, (3) meeting competition

objectives, and (4) prestige objectives. Not-for-profit organization’s well as for-profit

companies must consider objectives of one kind or another when developing pricing

strategies (Boone & Kurtz, 2005).

Peter S. Rose (2002), in his book entitled ‘Commercial Bank Management’,

provided that a banking company that wishes to acquire 5 percent or more of the equity

shares of an additional bank must seek approval from the Federal Reserve Board and

demonstrate that such an acquisition will not significantly damage competition in the local

market, will promote public convenience, and will better serve the public's need for

financial services. Banks acquired by holding companies are referred to as affiliated

banks.

The ultimate standard of performance in a market-oriented economy is how

much net income remains for the owners of a business firm after all expenses (except

stockholder dividends) are charged against revenue. Most loan officers will look at both

pretax net income and after-tax net income to measure the overall financial success or

failure of a prospective borrower relative to comparable firms in the same industry.

According to the Cambridge Journal of Economics (2008) entitled, ‘The impact of

business group affiliation on performance: evidence from China’s ‘national champions’,

institutional changes in the national champion groups are responsible for the observed

high performance in member subsidiaries. This argument is consistent with previous

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studies which find that certain institutional features more prevalent in China’s largest

groups (such as finance companies and research and development centres) directly

improve member performance (Keister, 2000). Other studies, moreover, concentrating

specifically on China’s groups, also give reasons as to why groups may provide benefits

to member firms. Nolan and Wang, have suggested on the basis of numerous case

studies that Chinese groups may pool and distribute heterogeneous resources for

member firms (such as management skills, brands, sales and marketing). It has also been

suggested that group membership may provide insulation from potential or real political

intervention, thus controlling an uncertain political environment while ‘improving their

access to scarce goods’ (Keister, 2000). Moving beyond studies of Chinese business

groups, studies in other regions of the world also list numerous credible reasons as to

why business groups may enhance firm-level performance, a major one being the

presence of imperfect markets (Khanna and Yafeh, 2007). It is entirely conceivable, of

course, that Chinese groups do substitute for missing markets, hence leading to lower

transactions costs. Such missing markets are particularly severe in transition economies.

In other words, in the Chinese context it is possible that business groups are ‘paragons’

as opposed to parasites. Indeed, the only other study with direct similarities to ours,

looking at listed subsidiaries of groups, finds evidence that they may improve subsidiary

performance (Ma, Yao & Xi, 2006). Smyth (2000), in a synthesis of current arguments,

also concludes that groups may be beneficial to firm performance in China.

On balance then, there are many reasons and considerable evidence for believing

that business groups may improve firm performance in the Chinese context. Indeed, the

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sheer proliferation of such groups, both state owned and private, would seem to suggest

they may enjoy some competitive advantages.

Marisetty & Subrahmanyam (2008), in the Journal of Financial Markets entitled,

Group Affiliation and the Performance of Initial Public Offerings in the Indian Stock

Market, showed that the relationship between group affiliation and firm performance has

been well documented in the finance, strategy and industrial organization literatures. The

broad consensus is that the specific institutional context of the economy plays an

important role in determining the merits and demerits of group affiliation. The evidence,

so far, suggests that in an environment with a relatively strong institutional infrastructure,

enterprises engaged in multiple businesses under-perform relative to those that are

focused on specific industries.

In contrast, in an environment with a relatively weak institutional infrastructure,

companies that belong to large, highly diversified groups tend to outperform stand-alone

companies. Firms in markets with a poor institutional infrastructure incur higher costs to

acquire finance, technology and managerial talent. Group affiliation reduces these costs

due to economies of scope and scale, and results in better performance. On the other

hand, if these necessary inputs for the growth of firms are easily available in the

marketplace, the positive group effect may disappear. In such cases, group affiliation

could be expensive, due to a lack of focus in one particular activity, resulting in

underperformance of group-affiliated companies when compared to their stand-alone

counterparts. This conclusion would be in line with the “conglomerate discount”

hypothesis regarding the industrialized countries, primarily the United States.

21

Estrin, Poukliakova & Shapiro (2009), in the Journal of Management Studies

entitled, ‘The Performance Effects of Business Groups in Russia’ by, showed that the

benefits to group affiliation may be pronounced when business groups are relatively

young and when the institutional infrastructure is weak and uncertain. It therefore support

the view of Yiu, Lu, Bruton, & Hoskisson (2007) that firms adapt to their external

environments in different ways, and that these differences should be explicitly recognized.

There are important advantages to business groups and their affiliates when market

failures are present and when business groups are in the process of forming. These

advantages are linked to the relative benefits of internal markets that permit the transfer

of critical resources within the group network. These transfers provide competitive

advantage for the affiliates, but also promote group survival through internal redistribution.

Thus, they find evidence in support of what they term the BG Robustness interpretation

of RBG strategy, whereby firms affiliated with RBGs are more profitable other things being

equal, and that over time profits are redistributed from stronger to weaker group

members. Importantly, these results are robust to changes in specification and estimation

method, as well when as we control for multi-collinearity and potential indigeneity.

Local Literature

According to Republic Act No. 10142 - Financial Rehabilitation and Insolvency Act

(FRIA) of 2010":

“Affiliate shall refer to a corporation that directly or indirectly, through one or more

intermediaries, is controlled by, or is under the common control of another corporation”

(Perez, 2006).

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According to Republic Act No. 10149- GOCC Governance Act of 2011

“Affiliate refers to a corporation fifty percent (50%) or less of the outstanding capital

stock of which is owned or controlled, directly or indirectly, by the GOCC” (Cruz, 2007).

Salvador & Fua-Geronimo (2010), in their book entitled, ‘Principles and Practices

of Management and Organization’, stated that according to Haimann, the term

"Management" has three (3) distinct aspects: First, management as a field of study or a

subject. Refers to the principles and practices of management. It includes all the

principles and practices as a body of knowledge and its application in its entirety. This

approach, however, is limited to give the correct nature of management. Second,

management as a team or class of people. Refers to the group of managerial personnel

of an enterprise functioning in their supervisory activity. However, who are the managers

and what are the activities that should be treated as managerial, are hard to identify,

unless some yardsticks are prescribed. This becomes more difficult especially when

those performing managerial activities have different titles in one organization as well as

in different organizations. Lastly, management as a process. Refers to the different

processes or steps of management -- right from planning to organizing, staffing,

supervising and controlling. Management in this context has been defined as he process

of getting things done by and in cooperation with others.

Decision-making is a vital part of business organization and management. The

question then is "how is a good decision made in business operation?" A good part of the

answer is adequate information, and expertise in analyzing and interpreting necessary

data. Seeking the views and expertise of other personnel may also help, as dies the ability

to accept that one was wrong, and to change one's mind. There are also measures to a

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good decision-making, various techniques which may help to make information adequate

and better analyzed, and to add objective precision to decision-making in order to reduce

the amount of subjectivity. There are two (2) definitions of decision-making according to

Robert Harris: First, Decision-making is a study of identifying and choosing alternatives

based on the values and preferences if decision maker. And second, decision-making is

the process of sufficiently reducing uncertainty and doubt about alternatives to allow a

reasonable choice to be made from among them.

Baysa & Lupisan (2014), in their book entitled, ‘Advanced Accounting Part 2’,

discussed that an enterprise may undertake expansions in several ways. It may expand

through acquisition or construction of new facilities or through a business combination.

Business combinations may be preferred over other means of expansion for the following

reasons: First, cost advantage- it is frequently less expensive for a firm to obtain needed

facilities through combination than through development. This is particularly true in

periods of inflation. Second, lower risk- the purchase of established product lines and

markets is normally less risky than developing new products and markets. Business

combination is especially less risky when the objective is diversification. For companies

in industries already plagued with excess manufacturing capacity, business combination

may be the only way to grow. Third, fewer operating delays- plant facilities acquired

through business combination are already operative and have met environmental and

other governmental regulations. A company that will new facilities can expect numerous

delay in constructions, as well as in getting the required governmental approval to

commence operations. Environmental impact studies alone can take months or even

years to complete. Fourth, avoidance of takeovers- many companies combine to avoid

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being acquired themselves. Smaller companies tend to be more vulnerable to corporate

takeovers, so many of them adopt aggressive buyer strategies as the best defense

against takeover attempts by other companies. Fifth, acquisition of intangible assets-

business combinations bring together both tangible and intangible resources. Thus, the

acquisition of patents, mineral rights, research, customer databases, or management

expertise may be a primary motivating factor in a particular business. And lastly,

companies may choose a business combination over other forms of expansion for

business tax advantages (such as tax-loss carryforwards) for personal income and estate

tax advantages, and for personal reasons.

Agamata (2012), in his book entitled, ‘Management Advisory Services: A

Comprehensive Guide’, discussed that the quality of decisions makes what an

organization is. And making decisions could either be centralized or decentralized. When

decisions are made only by the head of the organization, it is called a centralized

organization. When the authority to make decisions is delegated to responsible officers,

in different organizational levels, it is called a decentralized organization. Either models,

centralization or decentralization, could bring great results. However, managers have

come to realize that by doing things either others, they can produce astounding results,

and more wealth. When they trust others and delegate authority, decisions are faster, and

actions are quicker, and services become more satisfying to customers. These

organizational attributes are needed to stay abreast and relevant in a competitive market.

This premise gives birth to the practice of decentralization.

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Foreign Studies

According to the study of Fangzhou Shi (2015) entitled ‘Business Group Affiliation

Improves New Firms’ Profitability’, business groups that function as legally independent

firms and that are connected with common concentrated equity ownership are a dominant

structure outside of the United States. Several studies show that such groups are also

widespread in the new firm sector. As shown in this paper, business groups are a

pervasive ownership structure for new firms across industries in European countries. Its

dominant role dwarfs other common ownership structures for new firms, such as venture

capital (VC). The total effect of business group affiliation is controversial. On the one

hand, business group affiliation could be beneficial to group members by providing

financing advantages, improving operating efficiency, promoting R&D investment and

knowledge spillovers, and creating an internal labor market. On the financing advantage,

group members can leverage the group’s internal capital market and reputation, receive

contingent support, and share risk among group members. All of these benefits make the

business group an ideal ownership structure for new firms, which tend to be financially

constrained, vulnerable to financial shocks, highly risky, but active in innovation. On the

other hand, certain disadvantages of group affiliation may be more severe for new firms.

Among the various means of expropriation by the ultimate owner, the most notorious

phenomenon is tunneling. New firms usually gravitate to the bottom of the ownership

chains, where the diversion incentives are larger.

A group can be described as a corporate organization where a number of firms are

linked through stock-pyramids and cross ownership. Typically in a group, a single

individual, family or coalition of families controls a number of firms. Relative to

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independent firms, group structures are associated with greater use of internal factor

markets, including financial markets. Through their internal financial markets, groups may

allocate capital among firms within the group which can lead to economic benefits

especially when external financing is scarce and uncertain, such as for young and fast

growing firms or for firms which face temporary financial distress. These benefits of

internal markets may in turn be reflected in higher firm valuation and better firm

performance. Internal markets in combination with the typically complex ownership and

control structure of group-affiliated firms may, however, lead to greater agency problems.

The study of Claessens, Fan & Lang (2002), entitled, ‘The Benefits and Costs of

Group Affiliation: Evidence from East Asia’, suggests that there may be gains from group

affiliation, however, these gains do not come about automatically and can also differ by

country. This suggests that any gains depend on the country’s institutional context. It may

be that the benefits of internal markets are the greatest in those countries in which the

impact of agency problems are also the most severe. That is, while in countries with the

least developed external financial markets the potential beneficial role of internal markets

may be the greatest, it is likely that the ability to mitigate any agency problems associated

with group structures is also the weakest in these countries. This suggests that reforms

focusing on reducing agency problems may enhance the efficiency of the use of internal

markets and at the same time diminish the need for internal markets as they also

encourage the development of external financial markets. Thus, reforms could have gains

on both accounts although the exact relationships between internal markets functioning

and specific features of countries’ institutional framework remain to be researched more

in depth.

27

According to the study of Carney, Gedajlovic & Heugens (N.D), entitled, ‘Business

Group Affiliation, Performance, Context and Strategy: A Meta- Analysis’, the past decade

has witnessed a surge in research regarding the performance of business groups (BGs),

which Khanna and Rivkin (2001) define as “firms which though legally independent, are

bound together by a constellation of formal and informal ties and are accustomed to taking

coordinated action”. Three points of consensus are apparent in this body of work. First,

BGs are ubiquitous in many countries with types such as Japanese Keiretsus and

Zaibatsu, South Korean Chaebols, Latin America’s Grupos Economicos, Hong Kong’s

Hongs, India’s Business Houses, Taiwan’s Guanxiqiye, Russia’s Oligarchs and China’s

QiyeJituan becoming emblematic of their nation’s enterprise systems.

A second area of consensus is that BGs are structurally different from

conglomerate organizations, described by Williamson as H- and M-forms. While

coordination in conglomerates takes place through the unified internal control of a

portfolio of firms, coordination in BGs relies on a more complex web of mechanisms, such

as multiple and reciprocated equity, debt, and commercial ties and kinship affiliation

between top managers.

A third widely held position is that BGs owe their predominance in many countries

to the existence of market failures and poor-quality legal and regulatory institutions. In

this view, BG formation has taken place in these contexts in order to internalize

transactions in the absence of reliable trading partners or legal safeguards to guarantee

transactions between unaffiliated firms. Despite these points of consensus, disagreement

fueled by ambiguous research findings is apparent over the general question of whether

or not the net economic and social effects of BGs are positive. Such disagreement is

28

evident in characterizations of BGs by scholars as either ‘heroes or villains’, ‘paragons or

parasites’, ‘red barons or robbers barons’, or ‘anachronisms or avatars’. Specifically, a

lack of consensus exists on four key issues regarding BG performance and strategies.

First, researchers are divided regarding the performance implications of BG

affiliation. While some scholars theorize that the net effect of affiliation on profits is

positive, others argue that it is negative for some or all firms, and each can point to

empirical support for their positions. Researchers using exchange theory, transaction cost

analysis, and the resource-based view (RBV) of the firm find that affiliation enhances

performance. Yet others have found that these potential advantages are often not realized

due to various offsetting costs of affiliation. A third group of scholars have found that the

relationship between affiliation and performance is not universal, and that some firms

within a BG benefit at the expense of others. The effect of affiliation on performance

therefore remains an open question.

Second, uncertainty also exists regarding the institution-level variables which

moderate the affiliation–performance relationship. The prevailing viewpoint is that BG

affiliation benefits firms most in developing contexts characterized by voids in hard and

soft infrastructure, but the evidence on this point is inconclusive. In a study of BG affiliation

in fourteen emerging economies, Khanna and Rivkin (2001) find that affiliation is

beneficial in six countries, detrimental in three others, and ineffectual in the remaining

five. They conclude that the performance effects of BG affiliation “resist any simple

normative categorization” and that a definitive understanding of their effects in various

national contexts “must await further data collection and empirical inquiry”.

29

Third, while many studies have examined the performance consequences of

affiliation, there is a shortage of research examining the strategies of BG affiliates. As a

result, there is little evidence on the issues of whether the strategies of affiliate firms are

different from non-affiliated firms, and if so, whether these distinctive strategies affect the

relationship between affiliation and financial performance. A clearer understanding of

affiliate strategic behavior may therefore shed new light on the ambiguous findings

regarding the profit impact of BG affiliation.

Fourth, the evidence concerning BG performance has primarily been drawn from

studies at the affiliate rather than the group level. This is concerning because some of the

main theoretical arguments suggesting superior BG performs emphasize their aggregate

scale and scope efficiencies. For instance, it is widely argued that the performance

advantages of BGs are a function of their market power and capacity to wield political

influence. Similarly, Khanna and Palepu’s core argument also pertains to the group level

of analysis, as the success of BGs in emerging markets is attributed to their ability to

mimic market institutions. Thus, there appears to be a disconnect in the BG literature

between theories which emphasize group-level phenomena and empirical studies which

examine performance at the affiliate level.

Komera, Jijo & Sasidharan (N.D.), in their study entitled, ‘Does Business Group

Affiliation Encourage R&D Activities? Evidence from India’, showed that business group

affiliation has a significant positive influence on the sample firms R&D activities (both

propensity for undertaking R&D activities and R&D intensity).The results are robust to the

alternative definitions of R&D intensity such as R&D to sales ratio. They find that business

groups’ diversification across the related industries strengthens the business group –

30

innovation relationship, whereas diversification across unrelated industries weakens the

relationship. This supports the argument of spillovers of innovation benefits and

knowledge sharing among the group affiliated firms operating in the related industries.

The empirical evidence suggests that sample firms’ capital market participation and their

external financial dependence do not strengthen the business group – innovation

relationship. Such a finding complements the earlier evidence that the emerging market

firms do not use the external finance to fund their R&D activities.

Further, they find that the influence of business group affiliation on sample firms’

R&D activities declines with time. The passage of time during the study period coincides

with the improvement in the efficiency of institutional mechanisms in India. Hence, it may

be argued that the importance of business group reputation and its internal capital

markets in facilitating the funding for R&D activities declines as the efficiency of

institutional mechanisms improves. Such an argument complements the ‘institutional

voids theory’ for the existence of business groups in emerging markets, like India.

Kumar, Pedersen & Zattoni (2008), in their study entitled, ‘The performance of

business group firms during institutional transition: A longitudinal study of Indian firms’

showed that business group affiliated firms outperform unaffiliated firms in early phase of

transition, while they lose their advantage in the latter phases of transition, second,

benefits of group membership differ for different types of member firms; lastly, a time

series cross-sectional approach may improves the reliability of findings on the effects of

group membership during institutional transitions. This research investigated the link

between firm performance and the evolution of institutional environment in emerging

economies. Evidence from this study indicates that in the first phase of transition group

31

affiliated companies continue to outperform unaffiliated companies, while in the second

phase they lose their advantage. Furthermore, our findings show that benefits for group

membership are not homogeneous, but differ by age and sector of affiliated companies.

These findings expand traditional understandings of the relationship between firms’

performance and institutional context in emerging economies, and provide further support

to the idea that the relative performance of group affiliated companies is contingent upon

both the characteristics of the institutional context, and their peculiar features.

Local Studies

Garcia, Jardin, Lapuz, Leynes & Ocreto (2014), in their study entitled, ‘Magnifying

The Total Quality Management and Financial Implications of Toyota Motor Philippines

Corporation, provided an overview on Toyota’s Management that its philosophy has

evolved from the company's origins and has been reflected in terms "Kaizen/Continuous

Improvement", "Toyota Production System" and "Toyota Way", which it was instrumental

in developing. The Toyota way has four components: 1) Long term thinking as a basis for

management decisions, 2) a process for problem-solving, 3) adding value to the

organization by developing its people, 4) recognizing that continuously solving root

problems drives organizational learning. The Toyota Way incorporates the Toyota

Production System. Toyota has achieved the premier position in overall customer

satisfaction for the fourth consecutive time, according to the J.D. Power and Associates

2005 Germany Customer Satisfaction Index (CSI) Study. Toyota has scored 856 points

on 1000-point scale, performing particularly well in the areas of quality and reliability,

service satisfaction and ownership costs. In addition, Toyota models ranked number one

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in five out of seven segments. Toyota's sales grew representing continuous high demand

for all its models. This robust sales level was again made possible because of the

continued strong performance of its best-selling vehicle, the Vios and the Filipino favorite,

the Innova.

Bautista, Jarapan, Lagunzad, Lapara, Mateo & Simborio (2007), in their thesis

entitled ‘Metrobank Is Just A Click Away’, they provided an overview about the banking

industry. Leading the future of the industry means having to change a lot of things, while

keeping intact what made it the largest and number one bank in the country today.

Change for the bank brings with it an all-new perspective of doing business and a

renewed focus on its expertise-nurturing clients and financial stewardship. Through its

corporate social responsibility and unwavering service to its clients, the Philippines'

premier bank the Metropolitan Bank and Trust Company (Metrobank) has taken it upon

itself to celebrate another innovative service to cater customer needs through Electronic

Delivery Channels (EDC). At this age where rapid changing technology dominates

peoples' lifestyle. It's edge to continually cope and surpass these conditions. Because of

the countless benefits technology brings, Metrobank strengthens it's competitiveness by

producing a strong and sophisticated information technology that allows the use of latest

innovations without comprising security. They reach highly diversified customers base

through an extensive distribution of network. At the same time by delivering a wide array

of premium value product and services. Through EDC, banking is just a click away.

Metrobank stands out to continue providing meaningful contributions for the economic

and social development of the community in which they serve another reason for Filipinos

to be proud of. Whatever your needs are, Metrobank's array of electronic delivery

33

channels are guaranteed to make your life easy and worry-free. Complementing

Metrobank's ATM cards is a suite of electronic channels- mobile banking, phone banking

and Metrobankdirect, Metrobank's internet banking facility. Now banking is literally at your

fingertips anytime anywhere.

Rapisura, Rom & Sapetin (2011), in their study entitled, ‘Focusing The Lens On

The Business: The Management Perspective To The Financial Performance Of A.L.

Salazar Construction Inc. Based On Erich Helfert's Three-Point Performance Measures’

showed that in a world of competition, "Profit" is objective of every organization, and this

profit increases with the better financial performance. The organization has to achieve its

goals and profits accordingly and improve its profit and performance from previous years

and with similar organizations. One such tool is the financial analysis with the help of

various methods to interpret the performance. We know that business is mainly

concerned with financial activities. In order to ascertain the financial status of the business

every enterprise prepares certain statements, mainly prepared for decision making

purpose. But the information as is provided in these statements is not adequately helpful

in drawing conclusion. Thus, an effective analysis and interpretation of all factors affecting

performance is required.

Asa, Gatchalian & Reyes (2011), in their study entitled, ‘Achieving Maximum

Advantage Thru Sound Financial Management Of Bayan Telecommunications, Inc.’

provided an overview that sound financial management is both science and art that

requires careful tracking and prudent management of your organization’s financial

resources and cash flows. With sound financial management, an organization can

understand its cost and incomes; without it, an organization compounds any operational

34

problems and invites additional outside scrutiny. Unfortunately this is often an area

neglected by many business owners and managers. Businesses must have financial

control systems that are not complex, that provide early indications of potential problems,

and that result in clear, timely and appropriate decision being made. Sound financial

management is crucial to the success of any business. It involve financial decisions,

ranging from major to minor decisions which includes whether to accept or reject a

proposed project, make or buy decision, purchase or not a capital asset and the like that

requires an initial outflow of cash for an expected inflow or return in the return. Regular

monitoring of cash flows forms part of the important decisions they make to insure that

they have sufficient funds to meet the firm’s obligations to their creditors. While

companies undertakings to continuously improve its risk management capabilities,

cognizant of the dynamism of business and the industry, and in line with its goal to

enhance value for its stakeholders, they also strive to achieve excellence in the quality of

their products by innovations and they make every effort to attain superiority in landline

communication and internet services. A comprehensive financial plan is therefore needed

to aid in evaluation of an investor’s current and future financial state by using currently

known variables to predict future cash flows, asset values and withdrawal plans. It

provides them roadmaps for guiding, coordinating and controlling the objectives.

Baba, Daanan & Dela Cruz (2013), in their study entitled,’ Highlighting The Impact

Of Credit Management Of Pag-Ibig Fund To Its Financial Performance’ provided an

overview that Credit Management is the process for controlling and collecting payments

from your customers. A good credit management system will help businesses reduce the

amount of capital tied up with debtors and minimize your exposure to bad debts. The

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credit crunch brought about fundamental changes in how companies manage their

businesses. The emphasis today is on liquidity aspects of managing the business and

less on top line growth. More and more companies are undertaking a value judgment by

comparing the potential the risk of non-payment (borrower insolvency) versus potential

new or additional sales volume. Good credit management is vital to company's cash flow.

It is possible to be profitable on paper and but lack the cash to continue operating your

business. Credit management today is facing significant challenges because the

assessment of risk and the potential impact on liquidity has become more difficult.

Liquidity remains a critical element in the current credit climate as customers are using

longer payment terms, delinquencies are on the rise and banks are less inclined to help

bridge the gap.

Synthesis

The review of related literatures and studies presented in this chapter guide the

researchers to have a better understanding about the subject matter of the study and

provide appropriate perception that gave the researchers a clear direction in the conduct

of the study.

The foreign and local literatures showed several definitions and discussions about

group affiliation that added additional knowledge for the researchers as far as the subject

matter is concerned.

This study is similar to the foreign study entitled “Business Group Affiliation

Improves New Firms’ Profitability” by Fangzhou Shi (2015) in which the author discussed

that the business group affiliation leads to an increase in new firms’ profitability during the

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first six years. Shi further present evidence consistent with two channels. First, new firms

quickly increase revenues and expand market shares after joining business groups,

possibly leveraging on groups’ marketing networks. Second, group affiliation triggers a

higher ratio of top manager turnover and leads to more experienced top managers and

more productive employees. It is possible that business groups provide a talent pool of

managers and better monitor new firms’ labor force. However, the difference arises since

Shi focuses on a new firm’s profitability.

Moreover, this study is also similar with the study entitled “The performance of

business group firms during institutional transition: A longitudinal study of Indian firms” by

Kumar, Pedersen and Zattoni (2008). The authors test for effects of business group

affiliation on firm performance over a 17 year time period from 1990 to 2006. Their findings

show that (i) the performance benefits of group affiliation erode with the evolution of the

institutional environment; (ii) older affiliated firms are better able to cope with institutional

transition than younger affiliated firms; (iii) service-sector affiliated firms are better able to

cope with institutional transition than manufacturing-sector affiliated firms. Furthermore,

their findings both support the institution- and transaction costs-based theory of business

groups that helped the researchers as a guide in formulating some parts of this thesis.

In this chapter the researchers find that there is broad agreement among

researchers and scholars that business group affiliations are a phenomenon of great

theoretical perception and also an important point of contention and ambiguity regarding

their financial performance and strategies.

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The literatures and studies in this chapter enhanced the researchers’ ideas and

knowledge regarding the subject matter of the study. Furthermore, the studies have

strengthened the foundation of this study since the conclusions and perceptions they

furnished gave this study the information it needed in the realization of the analysis.