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Article
Publication date: 1 June 1991

Robert L Conn, Karen E. Lahey and Michael Lahey

This paper extends the merger pricing model associated with Larson‐Gonedes to the general question: how well does the premium developed from the pricing model forecast the…

Abstract

This paper extends the merger pricing model associated with Larson‐Gonedes to the general question: how well does the premium developed from the pricing model forecast the securities market reaction of the actual merger? Based on a sample of 91 common stock mergers, shareholders in participating firms incur wealth losses about half the time but the magnitude of the gains outweighs the losses such that statistically significant gains are reported for both buyers and sellers. Removal of market wide price movements further increases the gains to shareholders. However, the premium consistently overstates the gain obtained by acquired firms and bears no systematic relationship to the gains registered by shareholders of acquiring firms. Financial analyses of mergers have focused almost exclusively on mergers as “events” with resultant measurements in abnormal returns surrounding the merger announcement/consummation to shareholders, and occasionally bondholders, in both buying and selling firms. Recent reviews of these studies by Halpern (1983), Jensen and Ruback (1983), and especially Roll (1986) stress the tentativeness of the findings and the ambiguity of their interpretation. The common feature of all this analysis has been on the ex post valuation of the merger event by the securities market from an informational content perspective. Alternatively, these studies have evaluated indirectly whether the price premium paid in an acquisition exceeds, equals, or is less than the market's valuation of the net present value of the merger, and how the spoils/losses are distributed between acquirers and acquirees. But never is the bid premium itself determined and then compared to the market's reaction upon public announcement. As Roll argues, the merger process involves three steps: “First, the bidding firm identifies a potential target firm; second, a ‘valuation’ of the equity of the target is undertaken…; third, the ‘value’ is compared to current market price… If value exceeds price, a bid is made…” Roil (1986, p. 198). This paper links the price premium offered in mergers to the market's reaction to the news of the merger, or alternatively, it compares Roll's steps two and three. The merger pricing model used is the exchange ratio determination model developed by Larson and Gonedes (1969) and applied to mergers by Conn and Nielsen (1977). The pricing model, commonly cited in finance texts (eg. Copeland and Weston (1988, pp. 757–763), has the advantage of being deterministic and thus provides a direct measure of the bid premium subject to a pareto optimal wealth constraint for shareholders in both buying and selling firms. The principal question this paper asks is: Does the price premium provide a consistent, unbiased forecast of the market's reaction? This is an important question from both the bidding firms' and target firms' perspectives for several reasons. First, the terms of the negotiated merger may signal important information to the securities market regarding the degree of agency costs in the merging firms. For example, an excessively high negotiated price for the target may indicate either the bidder has inept management or management insulated from shareholder interests. Thus, the terms of a merger may reflect not only the participants' expectations regarding the merger itself, but also be influenced by existing — although previously unknown — agency costs. The signalling information contained in merger announcement may obviously mask the expectational information, creating ambiguity in interpretation of market reaction. Second, distribution of the market reaction for buyers and sellers is important not only to participating firms' shareholders, but also to the effectiveness of the market for corporate control. A perfectly competitive merger market assures that merger premiums equal the expected value of the increased market values of merging firms. Thus, divergences between premiums and subsequent market reactions may have important implications for assessing the degree of competitiveness in the merger market, and hence, the effectiveness of mergers as a disciplinary force in the market for corporate control. Finally, the adequacy of ex ante merger pricing models remains an unexplored issue. Using an improved methodology, the Larson and Gonedes (LG) model is expanded to adjust for market wide movements in PE ratios; thus, merger specific influences on wealth positions are more clearly focused upon in contrast to the earlier work by Conn and Nielsen (1977). The earlier finding by Conn and Nielsen that approximately one half of mergers sampled in the 1960s failed to meet the pareto wealth constraint for participating firms is therefore re‐examined with an improved methodology and more recent sample of mergers occurring through 1979. The paper is organised as follows. Section I reviews and critiques the Larson‐Gonedes merger pricing model. Section II describes the empirical methodology and sample. Section III presents the empirical results and Section IV concludes with a summary.

Details

Managerial Finance, vol. 17 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 25 May 2010

David J. Bochman and Michael Kroth

The purpose of this paper is to examine and synthesize Argyris and Schön's Theory of Action and Kegan and Lahey's theory of Immunity to Change in order to produce an…

Abstract

Purpose

The purpose of this paper is to examine and synthesize Argyris and Schön's Theory of Action and Kegan and Lahey's theory of Immunity to Change in order to produce an integrated model.

Design/methodology/approach

Literature discussing Argyris and Schön's Theory of Action (Model I and Model II), single and double‐loop learning, espoused theory and theory‐in‐use; and Kegan and Lahey's theory of Immunity to Change was examined. The two theories were then summarized, analyzed, compared and synthesized into an integrated model.

Findings

Within Kegan and Lahey's model of an immunity system, the Argyris and Schön Model I Unilateral Control Model should be considered a competing commitment. Kegan and Lahey's theory identifies a critical causal element (underlying assumption) not previously identified by the Argyris and Schön Theory of Action, thus opening the potential for expanded effectiveness by practioners of Argyris and Schön's theory.

Originality/value

Little attention has been given in the literature to comparing or integrating these two theories. The synthesis of the two theories opens the possibility of overcoming limitations experienced by practitioners promoting double‐loop learning in organizations.

Details

The Learning Organization, vol. 17 no. 4
Type: Research Article
ISSN: 0969-6474

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Book part
Publication date: 23 April 2012

Michael Wallace, Bradley R.E. Wright, Christine Zozula, Stacy Missari, Christopher M. Donnelly and Annie Scola Wisnesky

Purpose – In this chapter, we introduce the Internet-based field experiment (IBFE) that offers numerous advantages for bringing stratification processes “back into” the…

Abstract

Purpose – In this chapter, we introduce the Internet-based field experiment (IBFE) that offers numerous advantages for bringing stratification processes “back into” the study of religion. We present preliminary results from a study of class and race discrimination using this approach.

Design/Methodology/Approach – Using names of fictitious characters, we sent e-mails to a nationally representative sample of 4,680 U.S. Christian churches asking about possible membership. The e-mails varied only in the perceived race and class of the senders. We utilize a mixed methods approach to analyze variation in the content of the church responses.

Findings – Our early findings suggest significant variation by race/class manipulation, religious denomination, and region of the country in churches’ responses as well as the length of time they took to reply, the length of the response, the warmth, religious tone, and several other dimensions.

Research limitations/Implications – This study raises new opportunities for Internet-based research on religion in a variety of social settings, but there is not yet a well-established set of “do's” and “don’ts” for how to proceed. We advocate the development of a protocol of best practices as this research method develops.

Originality/Value – This study demonstrates the opportunities and pitfalls of the IBFE and the advantages it provides for studies of stratification and religion. Ours is the first study to apply this emerging method to the study of religion and stratification.

Details

Religion, Work and Inequality
Type: Book
ISBN: 978-1-78052-347-7

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Abstract

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Transformative Leadership in Action: Allyship, Advocacy & Activism
Type: Book
ISBN: 978-1-83909-520-7

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Abstract

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Maturing Leadership: How Adult Development Impacts Leadership
Type: Book
ISBN: 978-1-78973-402-7

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Article
Publication date: 1 July 1996

M. Andrew Fields

The pace of new regulation has been quite rapid in the United States during the past fifteen years. Consider the number of major pieces of legislation that have been…

Abstract

The pace of new regulation has been quite rapid in the United States during the past fifteen years. Consider the number of major pieces of legislation that have been passed during this time span and you immediately gain insight into this fast‐paced regulatory climate. It has been argued by some that oversight during the 1980s was lax and that regulations were much less enforced than in previous decades. This may be true in certain areas such as antitrust enforcement, but there can be no doubt that the total body of regulation has been expanding continuously.

Details

Managerial Finance, vol. 22 no. 7
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 May 1995

M. Andrew Fields

An appreciation of the legal environment becomes more important with each passing year for anyone involved in corporate finance. A casual glance at the morning newspaper…

Abstract

An appreciation of the legal environment becomes more important with each passing year for anyone involved in corporate finance. A casual glance at the morning newspaper will usually provide a quick reminder of just how much the two areas are interrelated. The current debate in the United States concerning health care legislation may well result in a package that has a tremendous impact on many companies and industries. Tax issues have been in the news recently as well. There have been a number of significant changes in tax regulations during the past decade, including the legislation just passed by the U. S. Congress in 1993. Smoking continues to generate considerable controversy, and one result has been courtroom battles between tobacco companies and local governments over antismoking ordinances. During the last year, the DuPont Corporation has been defending itself in court over charges that one of its products caused substantial damage to farm crops. Guilty or not, the risk and expense from product liability is an enormous problem confronting almost all companies today. Texaco settled a lawsuit with Pennzoil in 1988 for $3 billion in damages stemming from a battle for the control of Getty Oil. Texaco won that battle, but suffered a very serious setback in the courtroom.

Details

Managerial Finance, vol. 21 no. 5
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 22 April 2017

Robert Barner and Ken Ideus

Abstract

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Working Deeply
Type: Book
ISBN: 978-1-78714-424-8

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Book part
Publication date: 3 April 2020

Abstract

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Maturing Leadership: How Adult Development Impacts Leadership
Type: Book
ISBN: 978-1-78973-402-7

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Book part
Publication date: 29 November 2014

Kendall Zoller

We challenge the belief that people resist change while embracing the idea that change is necessary to lead. Cultivating leaders to orchestrate conflict with deliberate…

Abstract

We challenge the belief that people resist change while embracing the idea that change is necessary to lead. Cultivating leaders to orchestrate conflict with deliberate intention is a skill leaders can learn. Yet, skill alone is insufficient to lead. Using three models, Communicative Intelligence, Adaptive Leadership, and Adaptive Schools, we tell the story of how we developed leaders to think adaptively and communicate authentically to collaborate across diverse communities to bring their visions to fruition. This chapter describes the models and their integration from three perspectives illustrating how we focused the cultivation of leaders. First, the personal development of their dispositions related to communication, collaboration, and systems thinking. Second we worked on developing the skills to build relationships and think politically. And third, we focused on identifying and implementing systems to address the critical issues facing their schools.

Details

Pathways to Excellence: Developing and Cultivating Leaders for the Classroom and Beyond
Type: Book
ISBN: 978-1-78441-116-9

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