BENEFITS IN CENTRALIZING CORPORATE TREASURY: DOES IT REDUCE COUNTERPARTY RISK?
Anttla, Mikael (2017)
Anttla, Mikael
2017
Kuvaus
Opinnäytetyö kokotekstinä PDF-muodossa.
Tiivistelmä
The purpose of this thesis is to study the benefits a multinational corporation can achieve through centralizing its corporate treasury. More specifically, this paper examines whether or not a multinational corporation can reduce its counterparty risk by centralizing its corporate treasury activities. Centralizing corporate treasury means bringing treasury activities from subsidiaries under a centralized organization.
In the theoretical framework we cover economies of scale, financial risks, portfolio theory and centralized treasury. Through economies of scale we model the rationale for centralizing corporate treasury activities. In financial risks we examine in detail the counterparty risk posed by banks for multinational corporations. This will be followed by an overview to portfolio theory, which provides grounds for the empirical study. At the end of the theoretical framework we will cover the activities involved in centralizing corporate treasury and the possible benefits to be gained from it. This is to give an understanding and to highlight the importance of factoring in counterparty risk.
The empirical part focuses on studying the counterparty risk multinational corporations’ face from their banks using modern portfolio theory. The data set under study are the CET1 ratios of the largest 73 banks from SEPA countries with a time span of 2011 to 2015. By comparing the CET1 ratios of a portfolio of banks against that of individual banks we can assess whether or not counterparty risk increases when corporate treasury function is centralized.
This thesis contributes existing literature by showing that counterparty risk does not increase when comparing the CET1 variance of individual banks against that of a portfolio of banks. Furthermore, there are banks in SEPA area on which both the standard deviation of CET1 ratio and the average CET1 ratio outperform that of the portfolio.
In the theoretical framework we cover economies of scale, financial risks, portfolio theory and centralized treasury. Through economies of scale we model the rationale for centralizing corporate treasury activities. In financial risks we examine in detail the counterparty risk posed by banks for multinational corporations. This will be followed by an overview to portfolio theory, which provides grounds for the empirical study. At the end of the theoretical framework we will cover the activities involved in centralizing corporate treasury and the possible benefits to be gained from it. This is to give an understanding and to highlight the importance of factoring in counterparty risk.
The empirical part focuses on studying the counterparty risk multinational corporations’ face from their banks using modern portfolio theory. The data set under study are the CET1 ratios of the largest 73 banks from SEPA countries with a time span of 2011 to 2015. By comparing the CET1 ratios of a portfolio of banks against that of individual banks we can assess whether or not counterparty risk increases when corporate treasury function is centralized.
This thesis contributes existing literature by showing that counterparty risk does not increase when comparing the CET1 variance of individual banks against that of a portfolio of banks. Furthermore, there are banks in SEPA area on which both the standard deviation of CET1 ratio and the average CET1 ratio outperform that of the portfolio.