The Modigliani And Miller Theory Finance Essay

The Modigliani And Miller Theory Finance Essay The Modigliani Miller Theorem is a linchpin of modern corporate finance. At its core, the theorem is an irrelevance proposition: The Modigliani Miller Theorem provides circumstances under which an enterprises financial decisions are independent on its value. Modigliani (1980, pxiii) explains the Theorem as follows: à ¢Ã¢â€š ¬Ã‚ ¦ with well-functioning markets (and neutral taxes) and rational investors, who can undo the corporate financial structure by holding positive or negative amounts of debt, the market value of the firm debt plus equity depends only on the income stream generated by its assets. It follows, in particular, that the value of the firm should not be affected by the share of debt in its financial structure or by what will be done with the returns paid out as dividends or reinvested (profitably). There are four distinct results that are understood from the Modigliani Miller Theorem and they are as follow: The debt-equity ratio does not affect its market value under certain conditions. The second proposition inculcates that a firms debt-equity ratio is unaffected by its weighted average cost of capital that is the cost of equity capital is a linear function of leverage. Firms market value is sovereign of its dividend policy. Stock-holders are non-chalant about the firms financial policy. The modern theory of capital structure started with Modigliani Miller(1958) on the plight of capital structure irrelevance. The distinct results shown above were based on the following assumptions: Market prices cannot be influenced by scale of an individuals transactions that is all investors are price-takers. Firms and investors being market participants can lend or borrow at the same riskless rate. Income taxes are neither paid on the corporate level nor at a personal level. There are no transaction charges or allowances. Investors are all rational wealth-suitors. Enterprises are grouped into homogeneous risk classes such that all members of the group obtain the same return. Similar expectations about future company earnings are formulated by investors ( normal probability distribution). The assets of a company that can no longer carry out its business( insolvent) can be sold at full market values. Criticism of the Modigliani and Miller theory There is a common argument that Modigliani Miller provides a means of finding reasons why financing may matter but does not provide a reasonable description of how firms finance their operations. This is supported by a number of researchers such as Hamada (1969) and Stigiltz (1974). The theorem has given rise to a lot of questions. How do firms choose their capital structure? Do firms have target leverage? What are the determinants of firm capital structure decisions? Many researchers have tried to answer these questions in their studies but the results are still enigmatic. The most frequent hypotheses used to address capital structure are static trade-off, pecking order and market timing theory and many others. The criticism against this theorem can be grouped into two types: Papers that deal with the limitations of the arbitrage conditions. Arbitrage process is the operational justification for Modigliani and Miller hypothesis. Arbitraging can be defined as the process of buying a security in a market where the price is low and selling the security in another market where the price is higher. In so doing, an equilibrium is achieved and it implies that the security cannot be sold at different prices. According to the MM hypothesis, the total value of homogeneous firm that differ only in the debt-equity ratio will be similar due to the artibraging condition. The later is no longer smooth due to institutional restrictions and it is also affected by transaction cost due to the limitations of the MM hypothesis. The MM leverage irrelevance proposition bumped much controversy and criticism on the methodology section. Their proofs are based on a more appropriate and fundamental notion than a competitive equilibrium. This is where the arbitrage argument comes into play. When the arbitrage is absent, the economy becomes standard to price repetitive securities and Black Scholes (1973) depended on the MM- type arbitrage argument which was rather clumsy as it was engaged with the comparision of firms whose cash flows had similar risk characteristics. According to Stiglitz ( 1969)  [1]  , firms do not issue much debt as there is the consequence of bankruptcy. The focus switched from the idea of risk class to the importance of bankruptcy. Studies that analyse the effect of market imperfections on the firms choice of capital structure. Taxes, bankrypcy costs, transaction costs, adverse selection and agency conflicts are all part of the major explanation for the use of debt in corporate. Trade-off Theory The various costs and benefits of an alternative leverage plans are assessed by a decision maker who runs a firm. The trade-off theory is originated from a debate over the Modigliani and Miller theory. This is due to the addition of corporate taxes to the primitive irrelevance proposition. A debt benefit is seen to be created which serve as a shield before the takes. Bankruptcy is the offsetting cost of debt that is needed. The optimal debt-equity ratio mirrors a trade-off between the tax benefits of debt and deadweight costs of bankruptcy Myers (1984). A firm that anchors a target leverage ratio and gradually moves towards the target is a firm that follows the trade-off theory. The determination of the target is made by stabilizing the tax shields against the cost of bankruptcy Jensen and Meckling (1977); Harris and Raviv (1990); Taggart (1977). It also weighs up the advantages and disadvantages of using debt. As discussed earlier, there is a shield benefit that acts as a barrier to taxes DeAngelo and Masulis (1980). In addition, there is a reduction of the free cash flow problem Stulz (1990). However, the pitfalls of debt include the feasible cost of financial distress Kraus and Litzenberger (1973); Kim (1978) and the agency cost arising between the shareholders and the creditors. Frank and Goyal (2005  [2]  ) take the Myers earlier notion of trade-off to a new position namely the static trade-off theory determined within a single period and a target adjustment behavior. Agency Cost Theory Jensen and Meckling (1976) launched the agency cost of free cash flow theory. The theory is hinged on the conflict between managers, outside shareholders and bondholders. The conflicts can be either between the bondholders and shareholders which is a result of moral hazards or between managers and shareholders.. According to this theory, the managers do not always use the funds of the firm for the benefit of the company but rather for their own benefits. The managers exploit the powers they have and the abuse can be categorized in three different varieties. Foremost, managers possess ground on which they can enjoy the full value of anything they get from the firm such as private jets since they hold only a fraction of these allowances on the job consumption. Second, they might assay for the entire building as large firms have a tendency to give managers prestige, power and compensation for the work they do just to encourage them. Lastly, they have the power to tyrannise the firm acco rding to their own preferences and make themselves prerequisites by investing in projects which others cannot manage. This negates the wealth of the shareholders.. Harris and Raviv (1990); Bodie and Merton (2000) agency cost is seen to be more relevant to firms in mature industries. As these firms tend to generate cash which exceeds their investment needs. The availability of free cash in mature industries is higher and easily used for the management of the firms. Nyborg (2010). Therefore, it is true to say that agency cost is more relevant to larger firms. Market Timing Theory The market timing theory is based on the fact that enterprises prefer to issue stocks when the prices of the stocks are high and repurchase the stocks when the prices are falling. The assumption they make is that the market can be timed and managers really try to time market. The issue of debt and new equity can be made based on past price movements Marsh (1982). In a survey of British firms, CFOs harbor that they try to time the equity market. Those who considered the issue of shares reported that the amount by which the stocks are undervalued and overvalued is an important factor Graham and Harvey (2001). The shocks of equity price have an inexhaustible effect on the corporate capital structure. Following increments in stock prices, firms tend to issue equity and repurchase shares when the stock prices decline which is actually the opposite of what one might expect if corporate tended to equalize their structures towards a target Welch (2004). Fischer, Heinkel and Zechner, (1989) observed that with new debt and equity issues over time, firms tend to return to their preferred leverage range. More specifically, firms are forced to march out from the preferred level of debt to equity ratio by embrassing more debt as a source of financing to new projects or as a way to self- defend themselves against take-overs show a transcendence to paying down debt to rebound to a more acceptable mix of leverage. Muscarella and vetsuypens, 1990. The Pecking Order Theory Donaldson (1961) had been the first one to describe the prominent story based on a financing pecking order. He monitored: Management strongly favoured internal generation as a source of new funds even to the exclusion of external funds except for occasional unavoidable bulges in the need for funds.  [3]  According to the picture that Donaldson framed, companies quietly complied retained earnings, becoming less tilted when they are lucrative and gather debt, becoming more uplifted when they are unprofitable. If companies are otherwise heedless about their capital structures as suggested by Miller (1977) then they will not make future capital structure selections which compensate the effect of their earnings history. But the common pecking order theory branches out from Myers (1984). A firm pursues the pecking order if it prefers  [4]  internal financing and debt equity if the external financing is used. The pecking order theory is proposed by Myers and Maljuf (1984) and is an application of asymmetric information theory. Following this theory, the managers of a firm who are considered as insiders are likely to posses private information about the firms quality and investment projects. Ergo, the choice of a firms capital structure strikes the outsiders who are actually the investors the information to managers. Because outsiders have less information than the managers regarding the value of the firm, the issued equity will be underpriced by the market. Financing the project through a security will prevent such a situation to crop up that is the security will not be undervalued by the market. The securities used can be in the form of retained earnings as internal funds and risk-less debts. Hinged by the argument set by Myers and Maljuf (1984) , Myers (1984) suggested that the pecking order theory propose that firms finance their projects by firstly using internal funds in the form of retained earnings, secondly through the utility of debts ( risk-less debts are used first and when there is a shortage or there is no more of the risk-less debt, risky debts are used) and finally equity is issued. Pecking Oder Theory speculates that managers do not take into consideration an optimal capital structure when making financial decisions.  [5]  They unpretentiously choose what seem to be the low cost financing devices. Why do firms prefer debt to equity? In corporate finance, asymmetric information refers to the fact that firm insiders, routinely the managers have better information than market actors on the value of their firms asset and investment opportunities. The possibility that the market will wrongly price the firms claim is created by this asymmetry thus providing a positive role for financing decisions of companies. Let us think of a firm who wants to make new investments by making use of its growth possibilities. Given that this firm solicits to supply the resources, it needs to issue stocks. The stocks cannot be fully valued by the investors Myers (2001). Pecking order theory is born due to mispricing which comes to light as a consequence of not knowing the actual values of equity. The existence of asymmetric information lies in the middle of mispricing Halov N and Heider F (2005). As a result of the asymmetric information, the firms quality as good issue stock to find resources, the issued equity are undervalued by investors koupoulos (2006). Since a price cut is liked to be observed from the investors and to avoid this situation internal resources are preferred rather than issuing equity to finance investment without incurring any cost that arises from asymmetric information. Fama and French (2002) found that later supply resources used in investment financing are debts as they bear a low risk. Due to the problems that are initiated by asymmetric information, firms hash external resources use as a cheaper policy as compared to the issuance of equity. There are several reasons why firms consider external financing as a better option to finance investment. One of them is the position of organizational sales. Enterprises with sturdy sales line gives the supremacy to finance through debt for their needs by availing form market trust towards them. These firms, therefore, have no trouble in repaying their debts due to the stable sales and their earnings. They are also liable to having recourse to debt more easily. Additionally, size and structure of firms is another factor to be considered. Firms having more accessorized assets put borrowing first in line of their resources list since they will easily get debt. Tax advantage is as well a factor that can be added to the above list as it prioritize debt financing. A correction on the original model has been suggested by Modigliani and Miller (1963). In the new model, they clearly incorporate the corporate income tax, while the other assumptions were kept untouched. Assuming ceteris paribus, the value of the firm (VL) will be maximized as it is a function of the market value of debt. In theory when the levered firm reaches its maximum market value as it is financed entirely by debt. To finance their needs of financing, the firm should use as much debt as possible. To further relax the Modigliani-Millers assumption, Miller (1977) introduced personal taxes together with corporate taxes into the model assuming that all enterprises have similar tax r ates. According to him, the relatively higher personal income tax paid on bonds by firms should be grossed up by any differential that bondholders will pay on their interest income otherwise, bonds will have no value and no one would want to hold bonds. Therefore, in equilibrium the debt advantage is negligible. De Angelo and Masulis (1980) brought in the recognition of the existence of a non- identical marginal tax rates among different firms and the outcome of tax-shield items in the financial statement other than interest expenses. As far as capital structure is concerned, they brought in two implications. First, in equilibrium a firm who is considered as a borrower benefits from a positive gain from leverage if the tax rate is higher than the marginal firm because of a low pre-paid interest rate they pay. Moreover, items such as depreciation, oil depletion allowances and investment tax credits are defacto non cash charges. They predicted that there is a positive relationship bet ween the level of debt and the effective tax rate and a negative relationship to the amount of non debt tax shields available to them. The interest rate of debt users is deductible from tax base which in turn relinquishes the importance to debt instead of equity. Equity financing confers rise to transaction costs and to avoid this problem financing through debt is viewed as another reason Fama and French (2004). In addition to that, uncertainty of control that might be experienced in enterprises is seen as a plausible factor. The presence of new shareholders confirms the fact that they will prefer stock financing as a lack of resources and will eventually give rise to risk of management control in firm whilst in financing via debt, there is no such risk of control loss. Lamont (1997) evaluates that more than three-quarter of corporate investments in US are made through internal financing. Further, Fazzari, Hubbard and Perterse  [6]  n (1988) has shown the delicacy of investment to internal cash flow, accenting the cost advantage of internal resources and thus explaining the fact why firms have recourse to external funds. Leary and Roberts (2005) also found that firms will not have recourse to external capital markets if they have sufficient internal funds but they are more likely to make use of the external funds when they have big investment needs. Event studies also provide a significant amount of evidence indicating that information is conveyed. Repurchases made through debt had larger announcement returns than those financed with cash thus representing larger increases in financial leverages Masulis (1980) and Vermaelen (1981) ). Heinkel and Zechner (1990) analysed an expanded catalogue of risky securities that include preferred stocks. Assuming a given capital structure and asymmetric information about investment quality, they showed that in an amalgamated equilibrium, all stock firms tend to overinvest and accepted some negative NPV projects. The overinvestment can be eliminated by issuing an initial debt which resulted in an optimal leverage ratio. Besides, an underinvestment problem is created if managers make use of more debts considering the tax advantage of debt. Nevertheless, a kindred issue of preferred stocks will enable the firm to issue a higher level of debt desired without creating the problem of underinvestment. Therefore, managers develop an optimal capital structure with debt, preferred stocks and common r which is consistent with the pecking order theory. There are also researchers that went through adjustments of capital structure around long run optima.  [7]  Marsh (1982) was one of them as he predicted that firms that have a leverage ratio below the average for the last 10 years are more likely to issue debt. Jalilvand and Harris (1984) is consistent with the results of Marsh (1982) as he shows that 108 of US manufacturing firms tend to issue long term debt when the long term debts are below average. The Pecking order theory is tested on both large firms and small firms. Most of the studies have been carried out on large firms. Few studies focused on small and medium sized firms. Since SMEs confront more information asymmetry problem, it is said that the financing decisions of SMEs are better explained by the pecking order theory. Consequently recent studies have attempted to explain the financing decisions of small firms in the context of the pecking order theory. They also argue that there is a lot of differences between large and small firms. It is not only a matter of size, this is why accurate models are used to study the decisions of the latter. The problem of information asymmetry is more persistent within small firms than in large firms. This is due to the scarcity and informality of information that is available. The financing structure of small firms is explained by using a financial growth cycle by Berger and Udell (1998). (à ¢Ã¢â€š ¬Ã‚ ¦) in which financial needs and option change as the business grows, gains further experience, and becomes less informationally opaque. For the first two years namely the initial stage or the infant stage, companies face more information asymmetries as their main source of funds are from friends and relatives, trade credit and investors. As the age and size of companies become large enough, credit from financial institutions become more available. This is a typical view of pecking order where the degree of information asymmetry decreases as the firms grow in size and experience. Small firms find external equity costly due to the fixed costs of initial public offerings. Chittenden et al (1996). A SME pecking order was described by Zoppa and Mc Mahon (2002).  [8]  As pecking order theory prescribes, the internal funding is the first choice. In second position, the company uses short -term debt which includes trade credit and personal loans. Long-term debts are then used which include loans from owners, family and relatives. The last alternative is equity. The study of Gebru (2009) is found to be consistent with other studies as pecking order theory holds to be true for SMEs. The sample used is from Tigray and it is seen that the educational level of owners decreases and there is less intrusion in the form of ownership. Ownership type, acquisition type and owners level of education are found to be the major determinants of MSE financing preferences. However, Murray and Goyal (2003) demonstrated that pecking order theory fails where actually it should be liable and this applies for small firms where the main problem is information asymmetry. Various studies have been carried out to test the validity of pecking order theory. Evidences have shown that many researchers are for the theory and the others are against and they are as follow: Shyam- Sunder and Myers (1999) proposed to investigate the pecking order theory in the US market. According to them, the pecking order was described as an excellent first order caption for financial behaviors of companies. The slope of a firms deficit is alleged to be equal to one and the coefficient of the intercept is zero if the pecking order holds. The regression is made to the change of debt in year t. Besides, results unveil that pecking order shows a greater confidence when tested with the target adjustment model. However Chirinko and Singha (2000) examined the interpretation of Shyam- Sunder and Myers (1999) regression test as it showed that the hypothesis test used by the later suffered from statistical power problems. These problems mustered the questions about the validity of inferences hinged on their new testing strategy. The former found out that the assumption of the slope of the deficit being one was not a necessary assumption for pecking order theory to be valid. The slope coefficient would equal to one if pecking order holds and will fall short to unity if the pecking order is not valid. Coupled with the above, the importance of information asymmetry as a determinant of capital structure as proposed by pecking order theory is tested by Bharath, Pasquariello and Wu (2009). It is seen that for the period, the test was carried out, information asymmetry did actually affect the capital structure decisions of US firms. They estimated that for every dollar of financing deficit to cover, firms in highest adverse selection decile issue more debt than those in the lowest decile. They also found out that its only when information asymmetry is to its minimum that firms will prefer to issue equity. These evidences explain the partial relevance of pecking order theory. Besides, Lemmon and Zender (2006) tested the modified version of pecking order theory. The debt capacity of a firm is taken into consideration. They wrangled that the financing choice of firms may depend on its debt capacity. This is because they believe that to fulfill financing needs, some firms may save on the debt capacity. Internal funds remain first on the financing list for all firms. Firms that are flexible to debt capacity will chiefly use debt to fill their financing deficit. Hinged on these findings, they came to the conclusion that the firms debt capacity is a good descriptor of financial behavior and goes along with the modified version of pecking order theory. Tong et al (2011) tested the static trade off theory against the pecking order theory for US firms. According to them, pecking order theory produces issuance of debt until the debt capacity is attained. Their evidence indicated that pecking order is a better headline for US firms issue decisions than the static trade off theory. The Australian case was evaluated by Suchard and Singh ( 2006). The Australian market can be distinguished from typical US and European markets as it has many distinct characteristics. They found out that listed debt market was limited. This is mostly where firms obtained bank debt, debts that are convertible but not callable and stand alone warrants which are used to raise capital. They examined the determinants of security choice for hybrid issuers based on these differences and claimed that the results supported the pecking order theory. Coupled with the above, the linkage between managerial optimisim and corporate financial decisions was verified by Lin et al (2008)  [9]  . The evaluation was carried out by testing the Heatons (2002) model. Apart from information asymmetry, managerial optimism also contributes in the pecking order theory. Lin et al (2008) wanted to know if the pecking order preference was better when the managers were more optimistic. Listed Taiwanese companies were used in their sample and a stronger relationship was found between the issuance of debt and the financial deficit which is consistent with the model used by Lin et al (2008). In contrast, Faulkender and Wang (2006) provide restrained evidence for the pecking order theory. According to them, approximately a value of $1.43 is placed on companies cash holdings by investors of equity firms. This is done as it prevents a company from paying costs when raising capital in the market. Since, external financing becomes more difficult and costly to obtain, the cash value is higher for firms facing hindrance on additional financing. However, the cash value decreases as cash holdings become larger, high leverage, better cash to capital markets and larger cash distributions through dividends rather than the repurchase of shares. Next, many individual financing decisions of firms were screened by Fama and French (2005).  [10]  They found that these decisions were in contradiction with the important prognosis of pecking order theory. To give an example of the contradictions, pecking order theory states that equity issues should be the last option to be used but yet, it is observed that most firms issue some sort of stocks annually. Leary and Robert (2010) contended that pecking order theory was no way able to meticulously classify more than half of the observed financing decisions of US firms. They also suggested that the little pecking order behavior that was seen was due to incentive conflicts rather than information asymmetry. Further, Gonenc (2008) studied to verify the extent to which pecking order theory was incorporated in corporations in the US, the UK, Germany and Japan. They speculated that investors from the UK and US had an asymmetric information problem which was caused by the large spread of equity being owned. He proponed that in these countries, two managers and insiders have more information than outsider investors. German and Japanese investors faced the same asymmetric information problem mainly due to the less information flows. But evidences have shown that US, UK and Germany firms were not very supportive when it came to the pecking order theory while Japan supported the pecking order theory during the 1980s and 1990s. The impact of industry membership on the capital structure dynamics were scrutinized by Tucker and Stoja (2011) over the period from 1968 to 2006. They recommended that pecking order theory could explain only a few aspects of UK corporations capital structure policies, but it does not give an adequate explanation of their behaviours in the real world. More explicitly, they perceived that in the short run, old economy firms followed the standard pecking order theory but the new economy corporations prefer equity to debt when external funds are required. The incremental financing decision for 150 Dutch firms was estimated for the period of 1984 to 1997 by Haan and Hinloopen (2003). A distinction is made between internal financing and three types of external funds: bank borrowing, debt issues and equity issues. They concluded that Dutch companies had ingrained financing preferences namely, internal financing was preferred in the first position, bank loans are used secondly, thirdly equity are issued and finally bonds are issued. In addition, an investigation was carried out by Delcore (2007)  [11]  as to whether capital structure determinants in emerging Central and Eastern European (CEE) countries followed the traditional capital structure theory. The explanation of capital structures in CEE cannot be made by the pecking order theory. They came to the conclusion that there are factors that influenced the leverage decisions for CEE countries and they were: the difference of banking systems, disparity in legal systems governing corporate operations, shareholders and bondholders rights protection and corporate governance.

On Theory Integration Essay

On Control Theory There are two founding tenets of control theory (Gottfredson and Hirschi,1990): all behavior, criminal or not, arises from the hedonistic tendency to seek pleasure and avoid pain; and the behavior may be criminal – or criminally analogous – when the actor is ‘insufficiently restrained’ from resorting to force or fraud in the pursuit of interest. Control in this context refers to restraining factors in the individual, in the form of internalized norms comparable to the superego and ego, and the controlling influence and authority of social institutions, such as the family, school, or neighborhood. Reckless (1961), for example, sees conformity in terms of inner containment through a favorable self-concept, goal orientation, frustration tolerance, and commitment to norms, and outer containment which comes from the availability of meaningful roles and social acceptance. Violation of these restraints involves personal costs in the form of punishment, social rejection, or loss of future opportunities. Whether a person yields to temptation therefore depends on the balance between anticipated rewards and costs (Piliavin, Hardyck and Vadum, 1968).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   One of the most significant with regards to this theory is the social control theory of Hirschi (1969, 1978, 1986), which suggests that conformity is dependent on the interrelation between the person and the environment (a â€Å"stake in conformity†), and that deviance results when the interrelation between the two is lost. The correlated elements of the bond are: (1) attachment to others in the form of conscience, internalized norms, and caring what others think; (2) commitment to conventional goals; (3) involvement in conventional pursuits incompatible with delinquent activities; and (4) belief in the moral validity of conventional values. No special motive to deviate is proposed, since everyone is exposed to temptation, and the theory is concerned with criminality in general rather than the commission of specific crimes.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The theory is silent about how bonds develop or break down, or how weak bonds produce deviant behavior other than by leaving the individual â€Å"free to deviate† (Conger, 1976; Box, 1981). Several theorists maintain that weakness of the social bond can only partially account for deviant behavior, and that individual variation in the motivation to deviate must be taken into account. This is the position taken by Elliott et al. (1985), who propose an integration of strain, control, and social learning theories.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   However, Hirschi and Gottfredson have recently reaffirmed the view that no special motivation is required to explain crime, which is a natural consequence of unrestrained human tendencies to seek pleasure and avoid pain (Hirschi and Gottfredson, 1988; Gottfredson and Hirschi, 1990). They emphasize the compatibility of classical choice theories of criminal acts and the positivist concept of criminality as the tendency to commit crimes, but see the latter as a function of self control. Criminal acts are held to be the immediate gratification of common human desires, and require little planning, effort, or skill. They depend on opportunities and temptations, and are closely related to other socially disapproved acts, such as drinking, smoking, drug-taking, illicit sex, and even accidents, all of which become more likely when people lack self control. Individuals who possess such generalized attributes have the tendency to be impulsive, insensible, physical (as opposed to mental), daredevil, thoughtless, and nonverbal. Low self control is preferred to â€Å"criminality† because of the positivist implications in the latter of positive causes, and hence differences between crimes in motives. Since the only common element in crimes and analogous acts is lack of self control, it is unnecessary to distinguish types of crime or criminal. On Containment Theory Since this is a study which involves both inner containment and outer containment, we are concerned with how these elements are formed within the individual and the relation of the two elements to each other. The central concepts of containment theory are: outer containment, inner containment, physiological and psychological pushes and the social stratosphere or pressures and pulls. Outer or external containment [Reckless, 1967:470] is the ability of the society, the state, the tribe, the village, the family, and other nuclear groups to hold the individual within the bounds of accepted norms and expectations. It assumes that society and particular nuclear groups contain, steer, shield, divert, support, reinforce, and limit its members. This may include norms and expectations, customs, rules and laws. The theory, therefore, assumes that individuals are presented with a set of norms for different age groups, for males and females and for various statuses. From these expectations [Reckless, 1967:470], one is presented with the â€Å"correct† model of behavior. When discussing outer containment, it is also necessary to assume that deviant, illegal and immoral behavior exists in most societies and that a society usually produces effective conformers. There are three major aspects [Reckless, 1967:470-471J of external containment for modern, mobile societies. Groups provide various rules of behavior and expect conformity to these rules. If a group can successfully get its members to internalize or conform to these rules, then external containment has occurred; violations are held at a tolerable level. Secondly, in addition to presenting the individual with rules and limitations, groups must also provide one with meaningful roles and activities. These roles may range from the family to a peer group or an educational situation. Roles limit behavior and when there are no roles or few roles present, then the individual is left on his own to establish limits on behavior. A third component of external containment [Reckless, 1967:471] is that of group reinforcement. This includes: a sense of belonging and identity, supportive relationships and acceptance by the group. This component comes primarily from nuclear groups; the family or a peer group. This is also called incorporation or integration of the individual. If one has a sense of belonging, acceptance and support, then one is more likely to stay within the given norms of society. Inner containment [Reckless, 1967:475J is the ability of the person to follow expected norms and, therefore, to direct himself. It involves the individual personality’s need to live up to expectation of others. It may inc1ude the aspect of shaming. For example, â€Å"you ought to be ashamed of yourself†. Inner containment may also include those phenomena which may threaten the self image or make one feel guilty. It is one’s stake in conformity, or one’s moral nature. It is manifested on a continuum from strong to weak self control. Reckless [1967:475] states that the self increases in significance as a controlling agent as a society becomes more diverse, alienated and impersonal, and as the individual spends an increasing amount of time away from home base. Increased impersonalization means that the self must exert greater directional control. There are certain components of the self which strengthen it to resist deflection from societal norms. These components make it possible for the individual to contain himself in a modern, mobile environment. They are: a favorable self concept, goal orientation or aspiration level, level of frustration tolerance and retention of norms. The first component of self, according to Reckless [1967:475], is the favorable self perception. The individual who perceives his own responsibility will act responsible. A favorable self concept aids in following approved standards of behavior. The person who perceives himself as honest, reliable and helpful will most likely act that way. Goal direction [Reckless, 1967:476] is the second component of self which gives high directional capability. Capability for inner direction is the result of focusing on such approved goals as education and job improvement. This is especially true when goals involve long range planning and effort. This insures against deviance because of the necessity to conform to socially approved methods to obtain the goals. Related to goal orientation is one’s aspiration level which should consist of realistically obtainable goals. The third self factor [Reckless, 1967:476J is that of frustration tolerance. This tolerance should be able to withstand pressures, failure and disappointments. Containment theory assumes that a high frustration tolerance will insulate the individual against being diverted from his course. It enables a person to be more in control of the situation. The last component [Reckless, 1967:476J of inner containment is retention of norms. This retention is the result of adherence, acceptance, and commitment, identification with, legitimation of laws, codes, values, customs and institutions. It is, therefore, assumed that self containment is a personal internalization of models of behavior. Ordinary strength and ordinary weakness in self containment represents a normal range of self development. An abnormal manifestation would be extreme rigidity of character. This may be the result of faulty development. Integrating Theories   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The divergence of control theory and containment theory is based on the maintenance of the status quo or the upholding of universal social standards. In the former theory, the curtailment of hedonistic tendencies of an individual is being elucidated to ensure that deviant behaviors will not manifest. While in the latter theory, the focal point is to provide ways on how deviant behaviors will be contained. Hence, theory A (Control Theory) provides the explanation of why a certain individual behave in a given manner, and theory B (Containment Theory) outlines different means in curbing out such given manner.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   If we put this context, say for example in the case of gang delinquencies, control theory will point out that a gang member shows juvenile behavior due to peer pressure, poverty, lack of parental guidance, and etc. The concern of containment theory on this crime is to provide realizable measurements for the person such as rehabilitation, education, guidance or simply through guiding the person on understanding the concept of good self image. Summary:   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   In toto, both theories discuss the delinquent and deviant tendencies of an individual depending on how the environment influences him/her, and how great is the impact of such environment to the individual. Applying both theories in crime, control theory is best embodied by the natural tendencies of a person since the behavioral patterns of the criminals is subsume in the context of Freudian psychology such as the id, ego and superego. On the other hand, containment theory is best exemplified in the quantifiable means of curbing out the innate tendencies of the person to in going against the standard, or simply by being deviant of the status quo. Both control and containment theories have the same concept of inner containment but differ in external terms. Reference: (Gottfredson & Hirschi, 1990; Rebellon & Waldman, 2003) Gottfredson, M., & Hirschi, T. (1990). A General Theory of Crime: Stanford University Press Rebellon, C., & Waldman, I. (2003). Deconstructing â€Å"Force and Fraud†: An Empirical Assessment of the Generality of Crime Journal of Quantitative Criminology, 19(3), pp. 303-331.

Multicultural Pedagogy in Higher Education - 3583 Words

Running Head: MULTICULTURAL PEDAGOGY Multicultural Pedagogy in Higher Education Multicultural Pedagogy in Higher Education There is a difference between teaching a course in which multiculturalism is the focus and incorporating an underlying multicultural, inclusive perspective into the classroom environment. Given that â€Å"there is no universal construction of a multiculturalism course that is perfect for achieving all goals for all students† (Henry, 2003, p. 26), finding a way to build a multicultural foundation for courses across the disciplines may be a better aim for faculty in higher education institutions. Multiculturalism is a concept that cannot be ignored in today’s society. It is real, it is related to the globalization of†¦show more content†¦Also relative to multicultural pedagogy are the actions that instructors take to display their awareness and competency in multiculturalism. If the goal is to support confident, inclusive, ethical students, then educators must exert similar qualities. In fact, Pang (1994) goes so far as to say that â€Å"modeling is the most powerful strategy in teaching† (p. 89). Conveying a similar message, one of Allen’s (2000) participants states that instructors must not impose their own values on students, but must be models for how to live ethically in today’s society. One of the ways to model multicultural competency is by using inclusive language. An example of this is not separating cultures by saying â€Å"us† and â€Å"them† when discussing different ethnicities or different cultural groups (Nagy, 2000). Multiculturally-oriented faculty should display inclusive and openness to helping all students. â€Å"College students who perceive their professors to be highly supportive of questioning are more likely to be motivated internally and to use strategies typical of self-directed learners† (Locke Kiselica, 1999, p. 82). Encouraging and supporting questions in the classroom are essential qualities for faculty members to have if the y are striving to create a safe environment in which students can learn. Also note that feedback addressing student progress is crucialShow MoreRelatedEthnocentric Education1811 Words   |  7 Pagesstudents alternatives to the white hegemonic pedagogy (Buchanan, Fox, Eckes, Basford, 2012). The same model would work wonderfully in Canada, where multiculturalism is more entrenched and welcomed. Target populations in Canada for ethnocentric education would be African-Canadian, Native Canadian, and Asian Canadian. Ethnocentric education, also known as culturally appropriate education, is not a monolithic pedagogical model. In fact, ethnocentric education can entail demographically mixed schools withRead MoreThe Alternative Teacher Preparation Program1662 Words   |  7 Pagesmany school districts in rural and urban areas with teachers. 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Research also suggests that teachers with high self-efficacy tend to be more effective in the classroom and helping students especially minority students achieve higher. In this article, the authors suggest that using self-efficacy building activities to build self-esteem in African American students. The general belief suggested activities is that preparing teachers should strive to development competence and confidenceRead MoreWhat Are Teachers, Educators, And Educators Preparing For This Change?1483 Words   |  6 PagesChange represents a continuous awareness on one’s self and the environment. It’s no surprise that the classroom, in terms of education, is becoming more diverse every school year, while teaching and instructional practices remain the same. 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To clarify, the authors use access, climate, expectations, and language instruction as the practices that will eliminate education inequality and enable students to be able to fully participate in rigorous course work without excluding English Learners. Ultimately this provides an approachable school reform, creates additive integration of multicultural perspective and approach and lastly brings a way for language diversity to be seen in the classroom. The four effective practices areRead MoreThe Diversity Of The Australian Curriculum972 Words   |  4 PagesAll students in education come from different backgrounds. Australia is a diverse, multicultural country with 44% of Australians born overseas or have one parent born overseas, Lawrence, Brooker, Goodnow, (2012, p. 75). Its diverse population is manifested in students who bring to class their ‘virtual bags,’ (Thomson, 2002), full of different cultures, languages, religious practices, value systems and customs which may alienate them from the dominant culture. Educators must create educational environmentsRead MoreNew Cultural Knowledge And Understandings974 Words   |  4 Pagesstereotypes and racism that he constantly heard and received from his elementary school till now. In James Cherry A. Banks text Multicultural Education Issues and Perspectives, Banks discusses that school reformation should be antiracist and antibias and having an antiracist and antibias perspective is at the core of multicultural education, â€Å"many people find that multicultural education automatically takes care of racism, but that is far from reality† (James Cherry A. Banks, p.316). Michal discussed many

The Pros and Cons of Biofuels

There are many environmental benefits to replacing oil with plant-based biofuels like ethanol and biodiesel. For one, since such fuels are derived from agricultural crops, they are inherently renewable—and our own farmers typically produce them domestically, reducing our dependence on unstable foreign sources of oil. Additionally, ethanol and biodiesel emit less particulate pollution than traditional petroleum-based gasoline and diesel fuels. They also do not have much of a net contribution of greenhouse gases to the global climate change problem, since they only emit back to the environment the carbon dioxide that their source plants absorbed out of the atmosphere in the first place. Biofuels Are Easy to Use, but Not Always Easy to Find And unlike other forms of renewable energy (like hydrogen, solar or wind), biofuels are easy for people and businesses to transition to without special apparatus or a change in vehicle or home heating infrastructure—you can just fill your existing car, truck or home oil tank with it. Those looking to replace gasoline with ethanol in their car, however, must have a â€Å"flex-fuel† model that can run on either fuel. Otherwise, most regular diesel engines can handle biodiesel as readily as regular diesel. Despite the upsides, however, experts point out that biofuels are far from a cure for our addiction to petroleum. A wholesale societal shift from gasoline to biofuels, given the number of gas-only cars already on the road and the lack of ethanol or biodiesel pumps at existing filling stations, would take some time. Are There Enough Farms and Crops to Support a Switch to Biofuels? Another major hurdle for widespread adoption of biofuels is the challenge of growing enough crops to meet demand, something skeptics say might well require converting just about all of the world’s remaining forests and open spaces over to agricultural land. â€Å"Replacing only five percent of the nation’s diesel consumption with biodiesel would require diverting approximately 60 percent of today’s soy crops to biodiesel production,† says Matthew Brown, an energy consultant and former energy program director at the National Conference of State Legislatures. â€Å"That’s bad news for tofu lovers.† Of course, soy is now much more likely to be grown as an industrial commodity than as an ingredient for tofu! In addition, the intensive cultivation of crops for biofuels is done with the help of large amounts of pesticides, herbicides, and synthetic fertilizers. Does Producing Biofuels Use More Energy than They Can Generate? Another dark cloud looming over biofuels is whether producing them actually requires more energy than they can generate. After factoring in the energy needed to grow crops and then convert them into biofuels, Cornell University researcher David Pimental concludes that the numbers just don’t add up. His 2005 study found that producing ethanol from corn required 29 percent more energy than the end product itself is capable of generating. He found similarly troubling numbers in the process used to make biodiesel from soybeans. â€Å"There is just no energy benefit to using plant biomass for liquid fuel,† Pimentel says. The numbers might look quite different, though, for biofuel derived from agriculture waste products which would otherwise end up in a landfill. Biodiesel has been manufactured from poultry processing waste, for example. Once fossil fuel prices rise back up, those types of waste-based fuels might present favorable economics and will likely be developed further. Conservation is a Key Strategy for Reducing Dependence on Fossil Fuels There is no one quick-fix for weaning ourselves off of fossil fuels and the future will likely see a combination of sources--from wind and ocean currents to hydrogen, solar and, yes, some use of biofuels--powering our energy needs. The â€Å"elephant in the living room† that is often ignored when considering energy options, however, is the hard reality that we must reduce our consumption, not just replace it with something else. Indeed, conservation is probably the largest single â€Å"alternative fuel† available to us. Edited by Frederic Beaudry.