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Article
Publication date: 1 January 2013

Mehmet Sinan Goktan

The purpose of this paper is to analyze the implications of the target valuation uncertainty on the wealth distribution between the target and acquirer firms in successful…

Abstract

Purpose

The purpose of this paper is to analyze the implications of the target valuation uncertainty on the wealth distribution between the target and acquirer firms in successful mergers. The paper specifically analyzes the division of the total dollar gains between the two parties and also whether the target and/or the acquirer experience a positive/negative gain in mergers when valuation of the target company is more uncertain.

Design/methodology/approach

The analyses contrast the implications of the uncertainty in three well‐known merger hypotheses; the market‐for‐corporate‐control, hubris and synergy.

Findings

The results are supportive of the implications of the synergy hypothesis. As target valuation uncertainty decreases, it is more likely that both parties experience positive gains from the transaction although more of the gains from the merger significantly shift towards the target company.

Originality/value

Results suggest that both parties are bargaining on the synergy gains and the target is able to negotiate a greater portion of the synergy gains when the value of the target becomes more predictable.

Details

Managerial Finance, vol. 39 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 January 1997

Bernhard F.J. Borges and Jack L. Knetsch

Reports the results of two experimental tests of the extent to which the large disparity between people’s valuation of gains and losses, and related fairness…

Abstract

Reports the results of two experimental tests of the extent to which the large disparity between people’s valuation of gains and losses, and related fairness determinations, are used in judging the acceptability of alternative negotiating or conflict resolution proposals. Participants acted as arbitrators and selected their preferred resolution of conflicts, involving either the division of gains or sharing responsibility for losses. Different cases were presented in which one or the other party incurred varied combinations of direct or opportunity costs, or received varied forms of payments. Contrary to conventional economic assumptions, but consistent with earlier behavioural findings, direct costs incurred by one party to the negotiation were far more important than opportunity costs in setting the terms of a more acceptable resolution. The results strongly suggest that recent behavioural findings might be used to improve the design of negotiating and conflict resolution proposals.

Details

International Journal of Social Economics, vol. 24 no. 1/2/3
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 14 October 2013

Oneil Harris, Jeff Madura and Charmaine Glegg

Agency theory suggests that if managers are not monitored, takeover negotiations may be contaminated by agency conflicts, which may weaken a firm's bargaining position…

Abstract

Purpose

Agency theory suggests that if managers are not monitored, takeover negotiations may be contaminated by agency conflicts, which may weaken a firm's bargaining position. This paper argues that some blockholders are more effective monitors than others, and tests whether the negotiating power of a target or bidder is influenced by their respective blockholder composition. The paper aims to discuss these issues.

Design/methodology/approach

This paper classifies target and bidder outside blockholders as either aggressive monitors or moderate monitors, and tests whether the degrees of monitoring effectiveness influence a firm's share of the total wealth created by the takeover (a proxy for bargaining power).

Findings

This paper finds that firms that have the types of outside blockholders with a greater tendency to monitor managers elicit higher takeover gains. This suggests that negotiating power in takeovers is conditioned on the types of blockholders that monitor the target and bidder. The results support the premise that better monitoring leads to higher gains for shareholders in a takeover. In particular, the findings suggest that the greater the tendency of outside blockholders to monitor managers, the lower the level of takeover-related agency conflicts and the stronger a firm's relative bargaining power.

Originality/value

These findings imply that agency conflicts on either side of a takeover bid may be reduced by better monitoring, but especially among bidders.

Details

Managerial Finance, vol. 39 no. 11
Type: Research Article
ISSN: 0307-4358

Keywords

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Book part
Publication date: 10 December 2018

Metin Sengul

In this chapter, the author outlines the link between organization design and competitive strategy, focusing on rivalry. A firm’s organization design choices can affect…

Abstract

In this chapter, the author outlines the link between organization design and competitive strategy, focusing on rivalry. A firm’s organization design choices can affect its competitive advantage as well as the strategic decisions of its rivals. Therefore, organization design can influence the nature and intensity of competitive interactions between firms. To illustrate this effect, the author focuses on the literature on divisionalization and offers a set of propositions as examples. Taken together, the author makes three main observations: (1) a firm’s competitive position and objectives are reflected in its organizational choices; (2) heterogeneity in competitive position and objectives lead to heterogeneity in organization design choices across firms; and (3) organization design and competitive strategy are interdependent processes. The author concludes by discussing the implications for strategy and management research and pointing out some opportunities for future research.

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Book part
Publication date: 15 June 2018

Elisa Labbas, Padma Rao Sahib and Trang Thu Doan

Many announced cross-border mergers and acquisitions (M&As) are never brought to completion despite potential negative consequences to acquirers and targets. This paper…

Abstract

Many announced cross-border mergers and acquisitions (M&As) are never brought to completion despite potential negative consequences to acquirers and targets. This paper presented evidence on the dynamic effects of spatial distance and two industry-level characteristics, namely industry relatedness between the two firms and technological intensity, on the completion likelihood of cross-border M&A deals. Based on a sample of 8,489 M&A transactions we found that the completion likelihood of cross-border M&As increases with spatial distance. The effect is more pronounced for deals across technology-based industries, evidence for related deals is inconclusive.

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Book part
Publication date: 13 August 2007

Todd Fister and Anju Seth

This paper complements previous research on investment in firm-specific human capital by applying real options analysis. Our framework suggests that the parties receive…

Abstract

This paper complements previous research on investment in firm-specific human capital by applying real options analysis. Our framework suggests that the parties receive valuable options to exit the contract when information becomes revealed in the future, but these options may be more valuable for one party than the other. Companies and workers attempt to reduce the value of the options through contractual mechanisms that either shift wealth to the party granting the option or prevent the option from being exercised. In both cases, the mechanisms cause the parties to invest in firm-specific capital, resulting in higher output and higher wages.

Details

Real Options Theory
Type: Book
ISBN: 978-0-7623-1427-0

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Article
Publication date: 4 September 2017

Eduardo Luiz Braun, Giancarlo Medeiros Pereira, Miguel Afonso Sellitto and Miriam Borchardt

The purpose of this paper is to analyze a contract-based relationship for value co-creation and gain-sharing between two companies for the purpose of industrial…

Abstract

Purpose

The purpose of this paper is to analyze a contract-based relationship for value co-creation and gain-sharing between two companies for the purpose of industrial maintenance services. After five years of good results for both parties, the relationship was terminated, thus raising questions regarding on the actual gains shared by both partners from joint actions.

Design/methodology/approach

The research method is the longitudinal case study. The research question is: why would a contractual relationship of co-creation of value be terminated given the fact that it yielded good financial results for both parts over the course of five years? The main research techniques were structured interviews with relevant actors and documental analysis from both parts involved in the contract.

Findings

Even valuable contracts can be terminated if the external scenario changes significantly: it matters very little the good job done together if the result became poor due to external reasons, as buyer’s sales drop in the period. In the inner scenario, mistruth can arise if the buyer maintains parallel structures for performing similar tasks to those of the service provider, showing some kind of independence from the supplier.

Research limitations/implications

The main limitation is that inherent to case studies: the lack of generalization.

Practical implications

When companies decide to contract regular long-term maintenance services, preventions to revenue reductions of the main activity the must be present, for the continuity of the contract.

Originality/value

To the date of this research, no similar study was found, regarding the influence of the external results in the internal relationships in co-creation value contracts.

Details

Business Process Management Journal, vol. 23 no. 5
Type: Research Article
ISSN: 1463-7154

Keywords

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Book part
Publication date: 14 December 2004

Jeffrey A. Martin and Kathleen M. Eisenhardt

Managers of corporations that are facing fading product-market domains are often inertial in their response to such decline or engage in endgame strategies within these…

Abstract

Managers of corporations that are facing fading product-market domains are often inertial in their response to such decline or engage in endgame strategies within these markets. For managers operating in dynamic markets, however, such responses are often ineffective. Rather, such markets often demand a corporate entrepreneurship response whereby managers move their businesses into new market opportunities as the value of current market domains inevitably begins to fade. The emphasis is on exiting from declining markets while simultaneously capturing and exploiting opportunities in more promising markets. In this chapter, we describe the recombinative organizational form (i.e. structure and process) by which this can occur. We focus on the modular organizational structure (i.e. modularity, relatedness, and loose-coupling) and corporate dynamic capabilities (i.e. probing, patching, and recoupling processes) by which managers can cope with the inevitable decline that is the nature of dynamic industries. An example from recent empirical research provides an illustration of such corporate entrepreneurship.

Details

Business Strategy over the Industry Lifecycle
Type: Book
ISBN: 978-0-76231-135-4

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Book part
Publication date: 2 May 2006

Robert C. Ward and Michael Carpenter

An international management movement known as New Public Management (NPM) emerged during the 1970s and 1980s. It relies on the normative use of economic market models…

Abstract

An international management movement known as New Public Management (NPM) emerged during the 1970s and 1980s. It relies on the normative use of economic market models, transaction cost theory, and public choice theories to deliver public services. While the manifestations of this new approach have taken many different avenues across the world, in the United States the primary manifestations have been found in the “Reinventing Government” movement (Gore, 1993), and the “Competitive Sourcing” plan of the Bush Administration (Office Management and Budget, 2002, 2003). A central component of NPM practices in the United States is the use of “outsourcing” of government service delivery to private or non-profit organizations.

Details

Advances in Library Administration and Organization
Type: Book
ISBN: 978-1-84950-403-4

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Book part
Publication date: 20 March 2007

Joseph Heath

Few issues in business ethics are as polarizing as the practice of risk classification and underwriting in the insurance industry. Theorists who approach the issue from a…

Abstract

Few issues in business ethics are as polarizing as the practice of risk classification and underwriting in the insurance industry. Theorists who approach the issue from a background in economics often start from the assumption that policy-holders should be charged a rate that reflects the expected loss that they bring to the insurance scheme. Yet theorists who approach the question from a background in philosophy or civil rights law often begin with a presumption against so-called “actuarially fair” premiums and in favor of “community rating,” in which everyone is charged the same price. This paper begins by examining and rejecting the three primary arguments that have been given to show that actuarially fair premiums are unjust. It then considers the two primary arguments that have been offered by those who wish to defend the practice of risk classification. These arguments overshoot their target, by requiring a “freedom to underwrite” that is much greater than the level of freedom enjoyed in most other commercial transactions. The paper concludes by presenting a defense of a more limited right to underwrite, one that grants the legitimacy of the central principle of risk classification, but permits specific deviations from that ideal when other important social goods are at stake.

Details

Insurance Ethics for a More Ethical World
Type: Book
ISBN: 978-1-84950-431-7

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