Mergers and acquisitions

Article Abstract:

The weak performance of new equity issues and of international stock markets in general has created conditions conducive to corporate expansion through mergers and acquisitions (M&A). M&A activity in Europe was particularly brisk in 1995, headed by such large organizations as Glaxo, Hoechst and Cadbury Schweppes. If primary equity markets do not recover soon, this trend could very well continue, particularly in view of the facts that European companies are cash-rich and have low gearing while the banks are eager to lend. In the UK, a bid premium is often determined by using the 30 plus percent formula. However, this is not the only prescribed approach because the appropriateness of a bid premium rests largely on the perspective taken. The use of Share Value Analysis in estimating company value generated by a new owner is discussed.

Europe, Corporations, Valuation

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Winners and losers - capital allocation: investment decisions, acquisitions and restructuring

Article Abstract:

The quality of investment decisions has a significant impact on the ability of companies to generate shareholder value. Boquist et al. (1998) offered a framework that senior managers can use to allocate capital in a manner that ensures maximum shareholder wealth. Its six features are dynamism, strategic relevance, cross-functionality, compensation system, recognition of options potential, and performance-based training. For their part, Sharpe and Keelin (1998) emphasized that qualitative issues should be addressed in conjunction with quantitative issues in capital allocation decisions. Other researchers showed that capital allocation should be managed not only when making internal investment decisions but also when enforcing takeovers. Their findings provide some insights as to how to go about allocating in this context.

Research

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Post auditing capital expenditures and firm performance

Article Abstract:

The relationship between post-auditing of capital investments and firm performance was studied in 42 large US firms. Excess returns to shareholders were found to be affected by properly matched sophisticated auditing procedures and variables such as capital intensity, level of capital expenditures and insider ownership. Moreover, the study showed that sophisticated auditing can reduce asymmetric information or the disparity between lower-level managers' and senior managers' access to central capital expenditure information. However, the study involved a limited number of cases and more research is needed to analyze the interaction between investment selection, investment control and other mix control mechanisms.

Analysis, Auditing

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