Acquisitions Of Subsidiaries Research Articles

An Analysis of the Causes and Effects of the Out-of-Control Merger and Acquisition of Subsidiaries—A Case Study of the Great Wall of Culture Company

The phenomenon of out-of-control of subsidiaries after mergers and acquisitions is becoming more and more prominent. Effective control of subsidiaries is the most important issue that needs to be paid attention to. How to reasonably and effectively control subsidiaries has become the focus of theoretical and practical research. Taking the acquisition of Jade Education by Great Wall of Culture as an example, this paper analyzes the causes of losing control after the acquisition and analyzes the impact of losing control subsidiaries on the enterprise by means of event research and financial index analysis. The study found that the main reasons for the out-of-control of subsidiaries are unreasonable performance commitment, excessive decentralization caused by cross-border mergers and acquisitions, and out-of-control caused by blind mergers and acquisitions. Moreover, the out-of-control subsidiaries are no longer included in the scope of consolidated statements, which has a significant impact on the operating conditions of enterprises. In order to prevent the subsidiaries from losing control, it is suggested to carefully select the target for merger and acquisition, conduct due diligence on the target enterprise before merger and acquisition, reasonably delegate decision-making power and enrich and improve the performance commitment agreement.

Globalization and U.S. Corporate Tax Policies: Evidence from Import Competition

This paper studies how globalization affects the corporate tax policies of U.S. manufacturing firms. Using U.S.-granting China Permanent Normal Trade Relations as a quasi-natural experiment, we find a significant increase in tax reduction activities for firms facing higher exposure to Chinese imports. The effect is more pronounced for firms with higher managerial slack. We also find that the effect is stronger for firms in less diversified products market and faster changing industries. We also show that U.S. firms facing higher Chinese import competition are more likely to engage in other tax-motivated activities: acquisition of subsidiaries in low-tax regions and suspected transfer pricing. Furthermore, we explore the 2017 tax cut and the recent U.S.-China trade dispute and find that firms engage less in tax reduction activities after the 2017 tax cut and after the tariff increase for Chinese imports. This paper was accepted by Kay Giesecke, finance.

Globalization and U.S. Corporate Tax Policies: Evidence From Import Competition

This paper studies how globalization affects the corporate tax policies of U.S. manufacturing firms. Using U.S. granting China Permanent Normal Trade Relations as a quasi-natural experiment, we find a significant increase in tax reduction activities for firms facing higher exposure to Chinese imports. The effect is more pronounced for firms with higher managerial slack. We also find that the effect is stronger for firms in less diversified products market and faster changing industries. We also show that U.S. firms facing higher Chinese import competition are more likely to engage in other tax-motivated activities: acquisition of subsidiaries in low-tax regions and suspected transfer pricing. Furthermore, we explore the 2017 tax cut and the recent U.S.-China trade dispute, and find that firms engage less in tax reduction activities after the 2017 tax cut and after the tariff increase for Chinese imports.

Determinants of engaging in business combinations through partial acquisitions

This study investigates the firm-level and country-level conditions affecting a company’s decision to engage in partial acquisitions. For the purpose of our empirical analysis, that decision is measured through the existence or non-existence of non-controlling interests (NCI) in 14 European countries. We find that size, leverage, profitability, cross listing, internationalisation and institutional characteristics play an important role in explaining the likelihood of engaging in partial acquisition of subsidiaries that results in reporting of NCI in consolidated financial statements. The main results hold, even if we replace institutional characteristics for different investor protection and securities regulation attributes. Our findings indicate that a company’s incentives to engage in partial acquisitions and report NCI include the ability to access alternative sources of financing (even cross-border), the ability to share risks and to obtain benefits from synergies and the ability to enter in new markets. Our findings also enhance the importance of controlling for firm and country characteristics when doing empirical research related to NCI.

Does the organisational form of the target influence market reaction to acquisition announcements? Australian evidence

Using public, private and subsidiary acquisitions, we examine whether abnormal returns to bidders depend on the organisational form of the target acquired. The evidence supports two main hypotheses: (i) bidders on private and subsidiary targets earn higher abnormal returns than bidders on public entities and (ii) bidders on private targets earn higher abnormal returns when the method of payment is stock. Acquisitions of unlisted public targets, privately negotiated acquisitions of private targets and acquisitions of subsidiaries from listed parents for cash are associated with higher abnormal returns.

Premiums in Acquisitions of Unlisted Targets

This paper examines the premiums paid by acquirers of unlisted target firms, using acquisition multiples and, for subsidiaries, parent-firm abnormal returns to infer bid premiums that are not directly observable. I find that premiums in acquisitions of subsidiary targets are significantly lower than those paid in acquisitions of publicly-traded targets, controlling for correlated bidder, target, and deal characteristics. I present evidence that suggests that these lower premiums are explained by greater bidder bargaining power in acquisitions of unlisted targets (and publicly-traded targets with concentrated ownership). I also find that bidder abnormal announcement returns are significantly negatively related to bid premiums - the more a bidder pays to acquire a publicly-traded or unlisted target, the worse the announcement return for the bidder. However, the low premiums paid in acquisitions of subsidiaries do not explain away the significantly more positive abnormal returns that accrue to bidders in those deals relative to bidders in acquisitions of publicly-traded targets. The results in this paper have implications for the relative bargaining power of the bidder and target in acquisitions, as well as for the choices parent firms make when deciding to dispose of a subsidiary.

Do Shareholders of Acquiring Firms Gain from Acquisitions?

We examine a sample of 12,023 acquisitions by public firms from 1980 to 2001. Shareholders of these firms lost a total of $218 billion when acquisitions were announced. Though shareholders lose throughout our sample period, losses associated with acquisition announcements after 1997 are dramatic. Small firms gain from acquisitions, so that shareholders of small firms gained $8 billion when acquisitions were announced and shareholders of large firms lost $226 billion. We examine the cross-sectional variation in the announcement returns of acquisitions. Small firm shareholders earn systematically more when acquisitions are announced. This size effect is typically more important than how an acquisition is financed and than the organizational form of the assets acquired. The only acquisitions that have positive aggregate gains are acquisitions of subsidiaries.

Takeovers and shareholder returns in the retail industry

Acquisition activity is one well-established growth mechanism in the retail sector. Between 1982 and 1996 over a thousand retail takeovers involving British companies are recorded. This paper seeks to apply approaches developed in the finance literature to the retail sector in order to measure the impact of this activity on shareholder returns. Based on a sample of 227 takeovers, which accounted for two-thirds of the value of activity over the 1982–96 period, this study reports that, while in general terms retail takeover activity appears to provide shareholder returns similar to those observed in other studies, namely bidders show above-average returns pre-bid but below-average returns post-bid, some difference from other studies exists. First, the method of payment (cash or equity) shows similar negative returns in the post-bid period, and second takeovers of previously independent firms show lower negative returns than acquisition of subsidiaries of other companies.

The Effects of Goodwill Tax Deductions on the Market for Corporate Acquisitions

We analyze the effect of the tax deduction for goodwill amortization provided by the Omnibus Budget Reconciliation Act of 1993 (OBRA) on the market for corporate acquisitions. We analyze a sample of taxable corporate acquisitions, including acquisitions of subsidiaries, private firms, and public firms, occurring over the period 1990 through 1996. We assess the impact of the goodwill legislation by (1) quantifying the frequency and size of qualifying acquisitions and comparing these acquisitions to nonqualifying acquisitions pre- and post-OBRA and (2) investigating if and how the goodwill amortization deduction influenced the premium paid for qualifying corporate acquisitions. We estimate a regression of acquisition premiums on target-firm characteristics including a proxy for purchased goodwill. We find that acquisitions qualifying for goodwill amortization comprise less than 17 percent of sample taxable corporate acquisitions before OBRA, and this percentage does not increase after the enactment of OBRA. Nonetheless, our regression results indicate that the OBRA goodwill provisions did contribute to a significant increase in acquisition premiums associated with purchased goodwill for qualifying transactions. Thus, rather than operate as a subsidy to acquiring firms, we find that a majority of the tax benefits associated with the goodwill amortization deduction accrues to target-firm shareholders.

The Effects of Goodwill Tax Deductions on the Market for Corporate Acquisitions

We analyze the effect of the tax deduction for goodwill amortization provided by the Omnibus Budget Reconciliation Act of 1993 (OBRA) on the market for corporate acquisitions. We analyze a sample of taxable corporate acquisitions, including acquisitions of subsidiaries, private firms, and public firms, occurring over the period 1990 through 1996. We assess the impact of the goodwill legislation by (1) quantifying the frequency and size of qualifying acquisitions and comparing these acquisitions with non-qualifying acquisitions pre- and post-OBRA and (2) investigating if and how the goodwill amortization deduction influenced the premium paid for qualifying corporate acquisitions. We estimate a regression of acquisition premiums on target firm characteristics including a proxy for purchased goodwill. We find that acquisitions qualifying for goodwill amortization comprise less than 17% of sample taxable corporate acquisitions before OBRA and this percentage does not increase after the enactment of OBRA. Nonetheless, our regression results indicate that the OBRA goodwill provisions did contribute to a significant increase in acquisition premiums associated with purchased goodwill for qualifying transactions. Thus, rather than operate as a subsidy to acquiring firms, we find that a significant portion of the tax benefits associated with the goodwill amortization deduction accrues to target firm shareholders.

The Significance of Outstanding Securities in the International Movement of Capital

It is the purpose of this article to draw attention to, and to make an analysis of, a type of international movement of securities which has, especially in recent years, acquired considerable importance and significance, but concerning which there has been to date virtually no systematic or extended discussion. I refer to what has been called, in various balance-of-payments studies, the “international movement of outstanding securities.”International movements of securities may take a variety of forms. Historically one of the most important types, and certainly the one most commonly referred to in the literature, has been the flotation of new (or refunding) security issues on foreign (or domestic) capital markets, and their purchase by foreign investors. Associated with this has been the repurchase of these issues by their issuers, either governmental or corporate, for sinking-fund or redemption purposes. A further type of securities movement, also of great historical importance, has resulted from the acquisition of a controlling interest in foreign corporations or real estate, or from the establishment abroad by a parent company of branches or subsidiaries. This category is generally known as “direct investments.” In this case, however, international transfers of securities are not always involved; whether they are or not will depend upon the particular method of financing adopted. The same is true with respect to the resale of direct investments abroad to foreigners. The reasons for the establishment or acquisition of subsidiaries abroad are well known and need not be gone into here.