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This paper examines whether financial buyers are more likely to initiate takeovers of inefficient firms. We show that they indeed are and thus conclude that takeovers by…
This paper examines whether financial buyers are more likely to initiate takeovers of inefficient firms. We show that they indeed are and thus conclude that takeovers by financial buyers play a potentially beneficial role in the allocation of corporate assets in the US. economy. Our analysis of determinants of takeovers initiated by financial buyers uses an application of the methodology developed in Trimbath, Frydman and Frydman (2001). In order to illustrate efficiency enhancements introduced by financial buyers, we select Forstmann Little’s acquisition of General Instrument for a brief case study. We show that their aggressive programs of cost management substantially improved the efficiency of General Instrument. Moreover, it allowed General Instrument to expand research and development to become the global leader in high definition television.
This paper analyzes the cash flow and corporate finance structure of large‐size Russian enterprises required by law to privatize. The legal framework and governmental…
This paper analyzes the cash flow and corporate finance structure of large‐size Russian enterprises required by law to privatize. The legal framework and governmental regulatory structure of Russia's mass privatization program are presented, and particular emphasis is placed on tracing the flow of cash (versus Russian privatization vouchers) between enterprises, investors and the government. Most Russian firms raise no cash during the initial privatization process and, accordingly, have substantial difficulties in obtaining funds to continue operations and to finance their growth and expansion. The authors believe that undue emphasis on the use of privatization vouchers has placed many newly privatized firms in conditions of extreme financial distress. Examples of the initial financial structure of three Western corporate finance transactions — spin‐offs, leveraged buy‐outs (LBOs) and Chapter 11 reorganizations — are compared to the initial endowment of liquid resources in Russian firms undergoing privatization.
When managers wish to raise external capital, investors must be able to trust that brokers and managers will not cheat them out of their money. To what extent is…
When managers wish to raise external capital, investors must be able to trust that brokers and managers will not cheat them out of their money. To what extent is government regulation necessary for the existence of advanced financial transactions and, for that matter, the well functioning of markets in general? A growing literature argues that strong state enforcement is needed to foster financial markets (La Porta et al, 1997, Glaeser et al, 2001). The problem of contractual performance and, more generally, the problem of social order are some of the most enduring questions in the social sciences. German sociologist Georg Simmel may have put it most eloquently in his 1910 essay when he asked, “How is Society Possible?” but the question is rooted in a discourse dating back at least to Thomas Hobbes’s (1651) Leviathan. Hobbes contended that social order was impossible without external enforcement, and in a similar manner many modern commentators in law and finance maintain that the state must play an active role for markets to function. In his study of emerging financial markets in post‐Soviet Russia, Timothy Frye (2000:2) argues that, “politics underpins social order”.
Bulgaria is one of the Eastern European countries attempting to convert from a Central Planned Economy to a free market capitalistic one. Numerous problems have arisen…
Bulgaria is one of the Eastern European countries attempting to convert from a Central Planned Economy to a free market capitalistic one. Numerous problems have arisen that have prevented this transition from being completed. These problems parallel many of those faced by other nations attempting this transition. This article investigates Bulgaria's attempt to privatise its commercial and industrial enterprises. The key problems concerning investment and risk are identified. Potential solutions are offered that may allow Bulgaria to accomplish its goal of moving towards capitalism and prosperity.
The distribution of state property to the private sector has always been and will continue to be intensely political. Relinquishing hiring, production, investment, and…
The distribution of state property to the private sector has always been and will continue to be intensely political. Relinquishing hiring, production, investment, and other enterprise decisions constitute a significant loss of potential rents to those who exercise control rights in state-owned enterprises. Additionally, the large transfer of wealth that privatization on a large-scale entails, combined with the potential for unemployment, loss of access to enterprise-based social services (which were substantial in state-socialist economies) threatens to undermine public support for privatization and reform in general.
Extending the work of Bayou (2001), we empirically investigate the relationship between firm size and resource productivity to assess whether the productivity of resources…
Extending the work of Bayou (2001), we empirically investigate the relationship between firm size and resource productivity to assess whether the productivity of resources (value in use) and their underlying value at sale (value in sale) vary with firm’s size.
We use seemingly unrelated regression of revenues and equity values on assets and employees for a large sample over a wide time period and across all industries. We compare companies that are growing, declining, or continuing in size relative to their industry.
With some variability on growth, we find that smaller companies hold more productive resources based on their capacity to generate more revenues per unit of resources (assets) relative to large companies. Further, as predicted, a firm’s workforce has productive value in use, but limited value after a firm’s sale as measured by equity values.
Collectively, our findings suggest that firm size matters in influencing resource productivity, and a workforce has productive value in use, but low value in sale.
After the precipitated decline of the Soviet Empire and its satellite states, a system change seemed to be called for, and many countries embarked on social and political…
After the precipitated decline of the Soviet Empire and its satellite states, a system change seemed to be called for, and many countries embarked on social and political reforms focussing on property structures in the economy. This raised the issue of governance in the institutions that would constitute the structures in which production would have to take place. In particular, some Central European countries opted for mass privatisations of the means of production, on the face of it so as to have the people participate in the wealth of the nation. In fact, the wealth of the nation depends on the structures in which it is constituted. Dissipation of property rights will reduce the value of the nation's productive capital, whereas an intelligent structure that creates good governance structures at the same time, increases the value of the producing capital. This relatively simple insight lies at the heart of our understanding of how to analyse different processes of mass privatisation. This essay develops a theoretical framework by which different governance structures can be analysed. The framework consists of a blend of the economic theory of property rights, new institutional economics and Austrian economic theory.
Throughout history, social philosophers have justified titles of possession by the right of occupation, labour, and social contract, while the economic justification rests…
Throughout history, social philosophers have justified titles of possession by the right of occupation, labour, and social contract, while the economic justification rests on efficiency grounds. Subscribing to the extremely contestable argument that there is a connection between private property rights and the performance and prosperity of capitalism, de‐socialization of ownership was to become the backbone for market oriented reforms in post‐communist society. The absence of clearly defined property rights, their capricious enforcement, widespread cronyism and criminal activity, in combination with a lack of resolution to terminate the quasi‐property rights of the former ruling elite, and imperfect markets have created a situation where, in the final analysis, the original foundation of most rights to property and wealth would hardly survive the test of justice and be validated in any socially responsible society. Moral precepts aside, given these circumstances, it would be hard for an economist to argue that the present process of re‐allocation of rights could be explained on efficiency grounds.
This paper discusses the institutionalists' economic thought and how they saw the role of property rights in economic development. It points out that the role of various…
This paper discusses the institutionalists' economic thought and how they saw the role of property rights in economic development. It points out that the role of various institutions in the economic performance of many developing countries cannot be ignored. One of the important institutional factors in many developing countries and transitional economies is the nature and definition of property rights. This paper therefore addresses the impact of property rights on overall economic performance of a country and more specifically on agricultural production and on the conservation and management of the environment. It is generally agreed that property rights are a claim to a benefit stream where the state provides protection from others who may interfere with the benefit stream. Well‐defined property rights are considered vital for transitional economies which are undertaking major structural changes. The recent literature on property rights in transitional economies is largely concentrated on the former socialist and communist economies of Eastern Europe, which are embracing the market economy. However, this also has significant implications for many developing countries like Fiji which can also be considered as transitional economies. For Fiji the transition is from a highly protected, inward‐looking economy towards an export‐oriented economy. Getting the property rights “right” seems to be one of the major obstacles to economic reform agendas for many of the South Pacific countries including Fiji.