Asset Acquisitions Research Articles

Asset versus equity acquisitions by financial institutions

AbstractWe examine the impact of asset versus equity acquisitions in generating firm value for financial institutions. We find that acquirers experience statistically and economically significantly higher cumulative abnormal returns in asset acquisitions compared to equity acquisitions. We analyze the announcement‐period returns and find that investors' reaction to asset acquisitions by financial institutions is met more favorably than are equity acquisitions. When employing the difference‐in‐differences approach, we find that asset acquisitions entail improved operating performance.

A Study of the Financial Crisis and Relevant Monetary Policies

This essay examines several pivotal moments in recent economic history in order to demonstrate the significant influence of monetary policy on global financial crises. Exploring the complex relationship between central banks, particularly the Federal Reserve, and the various crises that occurred, the study navigates through the consequences of monetary policy interventions. Beginning with an overview of the Federal Reserve's roles and mechanisms, the narrative unfolds into critical periods, including the stagflation of the 1970s, the subprime crisis in the 2000s, and the unprecedented challenges posed by the COVID-19 pandemic. Each crisis serves as a crucible for evaluating how well monetary policies can stabilize the economy in turbulent times. The examination centers on the application of diverse financial tools, encompassing interest rate modifications, open market operations, and non-traditional actions like asset acquisitions. Through meticulous examination, this paper seeks to explain how monetary policies, often evolving in response to economic paradigms, have shaped and reshaped the global financial landscape during times of crisis. By identifying the commonalities across these different crises, the study highlights the evolution of the Federal Reserve's strategies, underscoring its adaptability and resilience. These monetary interventions have broad implications for global financial stability, emphasizing the critical role of central banks in navigating the complexities of a rapidly evolving economic environment.

Participation in innovation platform and asset acquisitions among farmers in Southern Africa

Asset development is a crucial tactic for advancing social and economic development in Southern Africa. But until now, there has not been any solid evidence of how asset-building strategies affect Southern African households. This study investigates the relationship between participation in innovation platforms and the acquisition of assets among farmers. Data for the study were collected using a multistage sampling approach. The data were analyzed using the Endogenous Treatment Linear Regression model. According to the findings of the first regression (Probit regression), gender, marital status, years of education, number of male working-class members, number of female working-class members, number of aged dependents in the household, access to extension service and locational effect of farmers in Mozambique have a significant relationship with the participation of farmers in Innovation Platforms. The results of the endogenous treatment linear model for asset acquisition among farmers reveal gender, age, marital status, number of male-working class members, access to extension service, the locational effect of farmers in Mozambique, and participation in the activities of the Innovation Platform are all statistically significant. After controlling for observed and unobserved covariates, the study concluded that participation in the activities of Innovation Platforms has a positive relationship with the acquisition of assets among the farmers than they would have in the absence of participation in Innovation Platforms. Therefore, farmers need to enhance their asset base by participating in Innovation Platforms. This has a significant implication for the attainment of most of the targets of the SDG.

The relative significance of behavioural finance factors in the investment decisions of Australasian REITs

PurposeReferring to “behavioural finance” and “normative model” theories, this study explores the relative significance of behavioural heuristic biases in the investment decisions of real estate investment trusts (REITs) when compared with the conventional normative decision factors, with an ultimate aim to identify the significant behavioural factors that should be avoided to ensure rational asset acquisitions and market efficiency.Design/methodology/approachA triangulation approach was adopted. Qualitative multiple case studies were conducted, with four cases selected from Australian and New Zealand REITs across the industry, to identify what normative and behavioural finance factors are involved in investment decisions. This formed the basis for the subsequent expert review survey to explore how significant the behavioural factors were manifested in the judgement when compared with the normative factors.FindingsThree out of four theoretical behavioural factors manifested themselves in the investment decisions: investor sentiment, anchoring factors and overconfidence. The overall impact of these three behavioural factors was that they were as significant as normative factors in investment decisions. The heuristic availability of information was found to have no significant effect on experienced REIT fund managers.Research limitations/implicationsThe findings were based on four multiple cases and an expert review survey of six frontline fund managers, which form a baseline upon which further research can be conducted to widen the scope of research to cover all REITs in Australasia so that the results can become more robust to benefit the entire market in the region.Practical implicationsAs behavioural factors are significant in the decision-making process, REIT fund managers should raise awareness to avoid the significant behavioural factors identified, in particular investor sentiment, which was found to be the most significant one.Originality/valueThis study confirms the relative significance of behavioural factors in property investment decisions within the context of Australasian REITs and alerts fund managers to the ways they should follow to ensure rational investments and market efficiency. It also extends the scale of existing studies to cover not only Australia but also New Zealand for the benefit of the entire Australasian market.

Analysis on the Currency Policies in Respond to the Economic Recession after COVID-19 in the United States

The March 2020 onset of the COVID-19 recession precipitated an unparalleled fall in economic activity throughout the planet. To combat recessions, central bank policymakers employed various expansionary monetary policies. Through a literature study, the paper focuses on a discussion of the monetary policies adopted by the Federal Reserve of the United States. This paper examines three basic areas of monetary policy: regulatory changes led by the Federal Reserve, interest rate changes, and loan and asset acquisitions or quantitative easing. The study not only provides a full explanation of the adopted policies, but also takes a critical and objective look at the overall currency policies adopted by the Federal Reserve of the United States. Following an economic downturn, the report concludes that the Fed's measures were effective in commencing a period of economic recovery for the nation.

Proposed Interest Deduction Limitations and Applying the Arm’s Length Standard to the Quantum of Intra-Group Debt

Following the work of the OECD and G20, the Australian government is seeking to realign its thin capitalization and interest deductibility rules in accordance with the recommendations arising from BEPS Action 4, including shifting the focus from assets-based testing to profits-based testing for most entities. This is likely to be supplemented with a requirement to evaluate the arm’s length nature of the quantum of an Australian taxpayer’s intra-group borrowings and a unique integrity measure which seeks to deny debt deductions associated with borrowings that are connected with certain related-party asset acquisitions and payments. These measures represent a continued tightening by countries on tax deductions associated with high levels of debt.

지방세법상의 건설자금이자에 대한 연구

Acquisition tax is a local tax imposed on asset acquisition and its tax base is determined by acquisition price when the price is provable by objective documents. Although acquisition price is required to include direct and indirect costs necessary to acquire the assets, local tax law does not include detailed guidelines of how to include such costs in the tax base. This study focuses on one of the indirect cost of asset acquisition, interest on self-constructed assets and discusses capitalization of such interest when production activities cease.
 In financial accounting, some claim that interest on self-constructed assets should be capitalized because the interest is an acquisition cost, but others insist that interest is an expense incurred in financial activity, not in pro- duction activity, so it should be expensed. Current local tax law requires firms to capitalize interest for self-constructed asset regardless of how it is reported for the purpose of financial accounting. In addition, interest is capitalized even when construction ceases. Some practitioner and scholars are against such approach of tax law because it differentiates tax bases of the same asset acquisitions based on financial resources and construction periods.
 This study proposes that the local tax law allows taxpayers to cease interest capitalization for self-constructed asset unless they cease due to circumstances inherent in the production process. It is against the tax equity that the difference in acquisition periods results in the difference in acquisition tax amount for the same assets. New regulation may include when capitali- zation of interest can cease. In addition, it may also include that the suspen- sion of interest is an election made by a taxpayer and taxpayers are responsible for demonstrating that a cessation is not inherent in the production process. This study is expected to contribute to practitioners and policy makers by proposing new regulations in determining tax base of acquisition tax.

CEO–CFO team optimism: Commercial real estate transactions and REIT performance

AbstractThe managerial optimism literature concentrates on CEOs neglecting other executive team members. We evaluate the interplay of the optimism levels of the CEOs and CFOs of real estate investment trusts, and study their commercial real estate transactions. We find that firms led by optimistic CEO/CFO teams pay 3% more than their peers for their asset acquisitions if cash ratio increases by one percentage point. Our findings also exhibit inferior stock performance by optimistic teams following a transaction. Conversely, diversity in terms of CEO/CFO optimism prevents firms from overpaying, serving as a soft governance mechanism with salience to firm performance.

More on Accounting for the Assumption of Contingent Liabilities on the Sale of a Business

In his article "Assumption of Contingent Liabilities on Sale of A Business," which appeared in this journal last year, Professor Daniel Halperin ably describes the stakes involved in properly accounting for contingent liabilities assumed by a buyer in asset acquisitions. His primary conclusion is that a buyer of a business who assumes contingent liabilities should not be allowed, as some have urged, a deduction upon payment on these liabilities. Although I agree with much of Professor Halperin's analysis and almost all of his conclusions, I disagree with some of his underlying assumptions about the universal nature of contingent liabilities.Professor Halperin's analysis relies heavily on the related underlying assumptions that (1) there is always a legitimate reason for deferring a deduction until the person to whom the contingent liability is owed has been identified and that person has taken the amount into income and (2) more often than not, the expected value of the payments to be made on the liability can reasonably be valued in advance. If either of these assumptions is unfounded, the problems posed by contingent liabilities are more difficult than Professor Halperin's analysis might suggest, although his ultimate resolution of the situation may nevertheless be the best one available.This comment will explore Professor Halperin's underlying assumptions regarding contingent liabilities and examine the stakes involved in fashioning tax accounting rules that rely upon them. It will attempt to demonstrate that at least some liabilities, including some contingent liabilities, are different from the liabilities upon which Professor Halperin's analysis is based. This difference may not easily be accommodated in an income tax based on realization. Nevertheless, this difference may undermine both the assumption that there is a legitimate reason for deferring a payor's deduction until the ultimate payee is known and has been taxed, and may make it substantially more difficult to establish an appropriate value for theliability in advance of payment.

A Joint Optimization of Strategic Workforce Planning and Preventive Maintenance Scheduling: A Simulation–Optimization Approach

This paper proposes a Simulation–Optimization framework, where a maintenance system of high-value assets is modelled via a novel large-scale Discrete Event Simulation model. In contrast to the existing simulation models in the maintenance domain, the developed simulation model provides an integrated view of the different aspects of the maintenance system including asset acquisitions, maintenance workforce planning, and scheduling of preventive maintenance activities. Further, the workforce planning studies the technicians’ progression based on their allocated maintenance activities, and the trade-off between their progression and the recruitment of additional technicians, which is infrequently studied in this domain. The developed simulation model is coupled with a Differential Evolution (DE) algorithm, that is further enhanced with a K-means clustering machine learning method. By using this coupling (i.e., simulation-based optimization), we jointly optimize the scheduling frequency of preventive maintenance activities and workforce planning decisions (e.g., recruitment and career progression). The proposed framework proved its superiority in terms of representing the dynamics of the overall system, and providing optimal decisions about the workforce and maintenance schedules. A comprehensive study is proposed and showed the ability of the proposed framework to reduce the total maintenance cost on average of 5.6%, that is around three million currency units.

Debt covenants and asset versus equity acquisitions

AbstractWe examine whether the presence of loan covenants leads firms to choose either an asset or equity acquisitions. Asset acquisitions involve the selective purchase of a target company's assets, and equity acquisitions involve acquisitions of common stocks. We document that firms with loan covenants are more likely to engage in asset acquisitions as opposed to equity acquisitions. Our results are robust to alternative measures of loan covenants and to endogeneity concerns. Furthermore, the association between loan covenants and asset acquisitions is stronger among firms with greater debt covenant intensity, more severe agency problems, and lower profitability. Acquirers facing more intense competition within their industries are also likely to choose asset acquisitions. Our findings suggest that acquirers' incentives to avoid wealth transfer at the expense of debtholders drive the relation between debt covenants and choice of acquisition structure.

Online Appendix for Security Design for Private Acquisitions

Online Appendix A to Security Design for Asset Acquisitions shows that seller debt securities can be optimal security designs when informed sellers, rather than uninformed buyers, make acquisition offers, and when acquirers are cash constrained. In contrast, acquirer overconfidence and seller private information are essential components of our analysis of seller debt financing. Online Appendix B to Security Design for Asset Acquisition' shows that the ratio condition, Assumption 4, is satisfied by all standard textbook distributions (supported by the non-negative real line) whenever the standard monotone likelihood ratio conditions (Assumptions 1 and 2) of security design are satisfied. The distributions families considered are Chi-Squared, Exponential, Gamma, Gompertz, Half Normal, Lognormal, and Weibull. General sufficient conditions for the satisfaction of Assumption 5 are also developed. The paper is available at https://ssrn.com/abstract=3731086.

CEO compensation in early‐stage firms: Rewards for prospectivity and survival

AbstractPrior studies on chief executive officer (CEO) compensation focus mainly on large firms. This paper aims to suggest new factors associated with CEO compensation for small, homogeneous firms, specifically, Australian early‐stage mining exploration entities (MEEs). We document a set of predictors of CEO compensation proxying for economic performance, including geological prospectivity components of the exploration and evaluation (E&E) asset account and proceeds from equity raisings that enhances survival probabilities. We find positive associations between these predictors and CEO remuneration. In terms of CEO pay mix, we find that E&E asset acquisitions and equity proceeds are both positively associated with the proportion of option value in CEO total compensation. This suggests MEEs allocate their cash resources to investment opportunities, rather than CEO compensation. Overall, these findings, coupled with a significant and positive pay‐performance relation, provide evidence supporting efficient compensation practices in the MEE context.

Optimism in the Executive Team: Corporate Asset Transactions and Stock Performance

The literature regarding the effects of managerial optimism concentrates on CEOs, all but neglecting the broader executive team. We evaluate the interplay of the optimism levels of the CEOs and CFOs of listed real estate investment trusts, and study the commercial real estate transactions made by the firms led by these teams. We find that firms led by optimistic executive teams pay 2.7% more than their peers for their private asset acquisitions if the cash ratio increase by one percentage point. These firms also exhibit inferior stock performance following their asset acquisitions. Conversely, diverse opinions in the boardroom prevent firms from overpaying on their asset transactions, improving their stock performance relative to optimistic teams. Our findings suggest that diversity in terms of executive optimism is a soft governance mechanism with salience to firm performance.

A magyarországi fúziók és felvásárlások elemzési lehetőségeinek feltárása

The focus of this study is how to contribute to the preparation of databases and methods that are required to analyse corporate mergers and acquisitions (M&A) in Hungary, with special attention to the grouping of the most basic attributes of acquisitions. Based on the critique of the literature on M&A transactions, the synthesis of M&A concepts and the adaptation of practices abroad, the author proposes to group M&A cases into the following categories: corporate acquisitions, management acquisitions, asset acquisitions and mergers. He recommends this procedure as a starting point in finance, marketing and management research, in addition to legal research, in which the goal may be the outline of a case study or database analysis. The methodology in this article and the categories created are applied in the cases from Hungary, for which the author used two self-developed databases. His investigation covers a total of 864 transactions between 1997 and 2018 that were permitted by the Hungarian Competition Authority. The results indicate that management acquisitions and asset purchases nowadays dominate the domestic M&A market.

Selling to buy: Asset sales and acquisitions

This study explores the impact of joint corporate asset restructuring decisions, where firms sell an asset in order to fund a subsequent acquisition (selling-to-buy). We find that firms with asset sales are associated with increased acquisition probability. The effect is more pronounced for financially constrained firms. We also show that, in addition to the established improved firm efficiency from focus-increasing asset sales, financially constrained firms obtain the necessary funds to conduct focus-increasing acquisitions, improving further their efficiency. This translates into both higher long-run operating performance and stock abnormal returns at the asset sale announcement.

Have the Chinese National Oil Companies Paid Too Much in Overseas Asset Acquisition?

This paper provides both a quantitative and qualitative analysis of whether the Chinese oil companies have “overpaid” than international oil companies in overseas asset acquisitions. By controlling oil price and a number of asset- and deal-specific attributes that are known to affect the valuation of oil and gas projects, we find that while the Chinese companies did not overpay than international oil companies for the period of 2001-2008, there is statistically significant evidence that they overpaid during the 2009-2016 period (mainly 2009-2013). The counterfactual analysis indicates that the Chinese companies paid, on average, 64 percent more than what an international oil company would have paid for the same assets during the post-2008 period. Interviews with industry experts and qualitative analysis suggest that the overpayment mainly results from a series of mistakes due to lack of experience and rush for projects in a period of high oil prices rather than concerns about energy security or other political considerations. The results raise concerns over the efficiency and corporate governance of Chinese state-owned companies, pointing to the need for further reforms.

Equity versus Asset Acquisitions in the REIT Industry

Real estate investment trust (REIT) acquisitions are recurrent capital allocation decisions that impact the value and operations of the firm. Although REIT equity acquisitions have received considerable attention in the literature, the effects of major asset acquisitions require further scrutiny. We examine the impact of acquisition type on REIT market returns and operating performance. The results suggest no significant differences in market reaction to the form of acquisition. We interpret this as evidence in favor of efficiency in REIT acquisition decisions. However, the results suggest a net positive effect in operating performance of asset acquisitions relative to equity acquisitions, conditioned by firm and deal characteristics. Overall, our results suggest that asset acquisitions are more efficient in the long run. We provide evidence that the type of acquisition is relevant to firm operations.

Semiconductor manufacturing strategy: Where in the world to locate a fab or cleanroom?

Abstract The global market for advanced technology manufacturing assets is becoming ever tighter, compelling semiconductor companies, including OSATs (outsourced semiconductor assembly and test), IDMs (integrated device manufacturers), and foundries, to carefully explore all available options when planning manufacturing operations relating to fabs, tools, and cleanrooms. Despite the semiconductor industry's optimistic growth forecasts, global uncertainty generated by the continuing trade wars between the U.S. and China is causing anxiety among advanced technology companies and forcing them to constantly rethink their manufacturing strategies – buy vs. build, best fab location, risk mitigation, local incentives, etc. In 2018, semiconductor companies showed increased renewed interest in U.S.-based manufacturing in the midst of a continued lack of 200mm and 300mm capacity. As we have seen with the recent sale of Texas Instrument's 150mm / 200mm facility in Greenock, UK to Diodes Incorporated and Vanguard International Semiconductor Corporation's acquisition of GLOBALFOUNDRIES' 200mm Fab E3 in Tampines, Singapore, 200mm fabs are still in very high demand and manufacturers are becoming increasingly proactive as they look to expand capacity. In 2019, infrastructure-rich cleanroom manufacturing assets are going to continue to play an essential part in shaping these strategies to ensure global competitive advantage as more wafers are needed and more facilities are being built worldwide, particularly in China. Despite a slowdown in semiconductor mergers and acquisitions activity, the global semiconductor market will continue to consolidate as the manufacturing needs of advanced technology companies evolve with market changes. This has put a strain on manufacturing space and resulted in a number of new capital projects and expansions that may become difficult to fulfill in the current market. A shortage of existing manufacturing space means cleanrooms and operational fabs will sell at a premium. Many companies are also looking at greenfield sites with local government incentives playing an active role. Running in tandem, there is still a shortage of used and new production tools with lead times in excess of one year to purchase new fabs from OEMs (original equipment manufacturers) or equip new fabs. Drawing on some 20 years of infrastructure-rich manufacturing asset dispositions and acquisitions as well as a series of real-world fab transaction case studies, ATREG Founder, President and CEO Stephen M. Rothrock will provide insights into how to best approach manufacturing strategy decisions in the context of today's global semiconductor landscape.

Trade‐offs between Tax and Financial Reporting Benefits: Evidence from Purchase Price Allocations in Taxable Acquisitions

ABSTRACTUnder U.S. GAAP, firms recognize assets acquired in business combinations at fair value. Similarly, in taxable asset acquisitions firms adjust the tax basis of assets to fair value. Managers can increase the present value of future tax savings by allocating a greater portion of the purchase price to shorter‐lived assets than to goodwill or indefinite‐lived intangibles. However, this tax planning strategy imposes a financial reporting cost because it reduces book income following the acquisition; all else equal, allocations to shorter‐lived depreciable assets increase book depreciation expense, whereas allocations to goodwill and indefinite‐lived intangibles do not increase book amortization expense. We exploit the features of taxable asset acquisitions to investigate trade‐offs between tax and financial reporting incentives. We predict and find greater allocations to depreciable versus intangible assets when managers have strong tax incentives and weak financial reporting incentives. However, we also find that strong financial reporting incentives moderate the effects of strong tax incentives. These findings contribute new evidence to the literature on the importance of nontax costs in tax planning decisions