Determination Of Fair Value Research Articles

How does the Appraisal Right with the Concept of the Fair Value Including Synergies Work?: Lessons from Japan

AbstractThis article presents how the appraisal right, with the concept of the fair value which includes synergies, has worked in Japanese corporate law. The appraisal right gives dissenting shareholders the ability to protect their interests. The Delaware courts calculate a fair value by excluding synergy effects in appraisal proceedings. One can criticise the exclusion of synergies because the petitioners of the appraisal right might receive less than the merger price. It would be interesting to analyse how the situation changes if the fair value includes synergies. Japanese corporate law gives a good illustration for this. The revision of the Companies Act of Japan in 2005 enhanced the role of the appraisal right by empowering the Court to include synergy value into the determination of fair value. However, Japan's Court developed the doctrine to use the deal price as a fair value with a relatively lax review of the fairness of the deal process. This has resulted in an unattractive situation for petitioners of appraisal remedies, because they rarely gain profits through the appraisal remedy. Empowering minorities in black letter law does not necessarily strengthen minority protection in reality.

The Appraisal Right in terms of Section 164 of the Companies Act 71 of 2008: An Overview

The appraisal right in terms of section 164 of the Companies Act 71 of 2008 has been applicable to fundamental transactions undertaken by companies for a number of years. The first two aims of this article are first to provide an overview of the appraisal right, and second to revisit certain concerns that were raised about the determination of fair value by the courts where a shareholder makes an application to court for a determination of fair value. It is suggested that this should not present a major problem in practice, considering that existing practice in takeover laws requires the valuation of shares by an independent expert when a company undertakes an affected transaction. In the main, the requirements for fundamental transactions overlap with those for affected transactions. The requirements for affected transactions adequately deal with the determination of fair value. The third aim is to provide an overview of how companies attempt to limit the effect of the appraisal right on fundamental transactions using various terms and conditions precedents, and the fourth is to discuss developments in case law on the appraisal right remedy. It is concluded that the decisions of the courts on its application will assist companies in structuring fundamental transactions and shareholders in exercising the appraisal right. Finally, the article suggests reasons for including certain subsections in the appraisal right remedy, for instance, the power of the courts to award costs in certain respects and a requirement that extends the time periods within which a shareholder may make a demand where the company fails to comply with specific requirements. It is suggested that this enhances the ability of shareholders to exercise the appraisal right. The article also provides concluding remarks advising companies and shareholders. In the case of companies, it concludes, for instance, that due diligence in identifying the risk that certain shareholders may raise appraisal rights is required before initiating a transaction that may be subject to appraisal rights. Failure to do so may be costly to the company. And, in the case of shareholders, failure to adhere to the required procedures may result in loss of their appraisal right remedy, or loss of the right to approach the courts for an appropriate relief under the appraisal right remedy.

The Appraisal Right in terms of Section 164 of the Companies Act 71 of 2008: An Overview

The appraisal right in terms of section 164 of the Companies Act 71 of 2008 has been applicable to fundamental transactions undertaken by companies for a number of years. The first two aims of this article are first to provide an overview of the appraisal right, and second to revisit certain concerns that were raised about the determination of fair value by the courts where a shareholder makes an application to court for a determination of fair value. It is suggested that this should not present a major problem in practice, considering that existing practice in takeover laws requires the valuation of shares by an independent expert when a company undertakes an affected transaction. In the main, the requirements for fundamental transactions overlap with those for affected transactions. The requirements for affected transactions adequately deal with the determination of fair value. The third aim is to provide an overview of how companies attempt to limit the effect of the appraisal right on fundamental transactions using various terms and conditions precedents, and the fourth is to discuss developments in case law on the appraisal right remedy. It is concluded that the decisions of the courts on its application will assist companies in structuring fundamental transactions and shareholders in exercising the appraisal right. Finally, the article suggests reasons for including certain subsections in the appraisal right remedy, for instance, the power of the courts to award costs in certain respects and a requirement that extends the time periods within which a shareholder may make a demand where the company fails to comply with specific requirements. It is suggested that this enhances the ability of shareholders to exercise the appraisal right. The article also provides concluding remarks advising companies and shareholders. In the case of companies, it concludes, for instance, that due diligence in identifying the risk that certain shareholders may raise appraisal rights is required before initiating a transaction that may be subject to appraisal rights. Failure to do so may be costly to the company. And, in the case of shareholders, failure to adhere to the required procedures may result in loss of their appraisal right remedy, or loss of the right to approach the courts for an appropriate relief under the appraisal right remedy.

Application of numerical method of functional differential equations in fair value of financial accounting

Abstract In order to improve the information quality of financial accounting reports, this paper puts forward a functional differential equation, establishes the determination model of fair value by mathematical analysis method and studies the correlation of financial accounting information of fair value through this model. The results show that according to the fair value determination model, in the free accounting environment, fair value financial accounting information has an impact.

Fair value accounting implementation challenges in South Africa

PurposeThe objective of this research is to explore the challenges being encountered when applying and implementing fair value accounting requirements, focusing specifically on the determination of fair value per International Financial Reporting Standards (IFRS) 13: Fair value measurement (IFRS 13) in the South African capital market.Design/methodology/approachData are collected from 20 detailed interviews, primarily with preparers and interpretively analysed to identify how individuals internalise the requirements of IFRS 13 and the challenges associated with its application. The researchers focus specifically on South Africa because of its status as a developing economy and, at the same time, its extensive experience in applying IFRS.FindingsSouth African preparers appear reluctant to change from a conventional cost-based measurement approach to one grounded in fair value. Primary concerns include the perceived usefulness of fair value accounting and its conceptual appropriateness, given its perceived de-emphasis of the traditional stewardship role of financial reporting. Related challenges to the application of IFRS 13 include concerns about the cost of determining fair value; the inherent subjectivity of fair value measures and the practical difficulty of calculating fair values when markets are not efficient or where business environments are complex and dynamic where Level 1 inputs are not widely available for all assets and liabilities. These challenges encourage preparers to choose accounting policies, which minimise the use of fair value or apply the provisions of IFRS 13 legalistically.Research limitations/implicationsData are collected from a group of respondents from a single developing economy. Additional research on the application of IFRS 13 in other developing markets will be required to conclude on the relevance of economic, cultural and social factors for the understanding and implementation of new accounting standards by practitioners.Practical implicationsStandard setters and regulators cannot assume that new accounting standards will be interpreted and applied as intended. Even when compliance with IFRS is mandatory, preparers have considerable discretion when it comes to operationalising accounting prescriptions. Unless the challenges raised by preparers are addressed, misapplication of IFRS is likely to continue.Originality/valueThe research makes an important empirical and practical contribution by providing primary evidence on the operationalisation of IFRS 13 in a novel setting. It complements earlier research which has focused primarily on the conceptual/theoretical dimension and on American and European perspectives.

МЕТОДОЛОГІЧНІ ОСНОВИ ОБЛІКУ ЗАПАСІВ: МІЖНАРОДНИЙ ТА НАЦІОНАЛЬНИЙ ВИМІР

The article highlights the main methodological principles of inventory accounting in the context of comparing the requirements of international and national standards. The essence of inventories and the criteria for their recognition are determined, the classification of inventories for accounting purposes, their evaluation at posting and disposal, the general requirements for the disclosure of accounting information about inventories in the financial statements. It has been found that national standards detail the groups of inventories in accounting, although they do not disclose the characteristics of such systematization. Also the most fully prescribed requirements for the recognition of inventories as assets in NP (S) BU 9; under IAS 2, the recognition of inventories is not explained in accounting, but is explained only in the context of their recognition as an expense. The same methodological approach is observed in national and international practice regarding the methods of valuation of inventories at disposal and determination of fair value of inventories, but it should be noted that for greater disclosure of fair value of inventories there is a separate international financial reporting standard 13 “Fair value measurement”. International standards, in contrast to national standards, require greater disclosure of inventory information in the financial statements, in particular in the notes to the financial statements. First of all, it concerns the disclosure of information on: the adopted accounting policy for choosing the method of valuation of inventories at their disposal; the carrying amount of inventories carried at fair value less costs to sell; the amount of inventories recognized as an expense during the reporting period; operations to restore write-offs and other credentials. Research in this direction allowed to illustrate the positive and negative aspects of the current standards of inventory accounting and led to further scientific research to improve the methodological foundations of inventory accounting.

The future for the replacement cost in the International Public Sector Accounting Standards

The purpose of this paper is to review academic literature and professional practice guidance in relation to the replacement cost (RC) method of valuation in public sector financial accounting. The replacement cost is regarded as being the most appropriate basis for the determination of fair value when the fair value of the asset could not be reliably determined using market-based evidence (Wyatt, 2009). However, several problems persist in RC definition and application, underlining the lack of a uniform approach in the current valuation standards. The paper explores the current adoption of RC by performing a content analysis of the latest financial statements published by International Public Sector Accounting Standards (IPSAS) adopter jurisdictions across the globe. The analysis highlights interesting patterns in the use of RC and provides an empirical base for further investigations. Additionally, the research offers useful insights to stimulate professional and academic debate on the replacement cost method, particularly in view of amendments proposed by the recently published Exposure Draft.

Valuation Risk: A Holistic Accounting and Prudential Approach

Valuation Risk (VR) is the risk that an entity will experience a loss due to the inaccurate determination of the fair value of the financial instruments on its balance sheet. This risk is particularly significant for financial instruments with complex features, with limited-to-no liquidity, or with valuations that rely on internally developed models that may be seldom verified using actual trades. Bank VR has been drawing international supervisory attention recently. In February, the European Systemic Risk Board warned that the substantial amounts of instruments with complex features and limited liquidity that sit on banks’ balance sheets are a source of risk for the global financial system. In parallel, the European Central Bank has put trading risk and asset valuations among its supervisory priorities for 2020 and said it plans to execute investigations on banks with significant portfolios of complex instruments measured at fair value based on pricing models. Measured in terms of possible losses from fair value calculations and/or estimation errors on capital ratios, the potential impact of VR can be significant for banks with a combination of a high ratio of fair valued assets to total assets and a high leverage ratio. In such cases, even a relatively small error in determining fair values may significantly decrease the Tier 1 ratio. From a business perspective, banks with opaque and incomplete disclosure about the methods used to estimate the fair value (and the variation thereof) of complex financial instruments may find their stock prices penalized by financial analysts. The nature of VR differs from other banking risks. Market and credit risks, for example, are defined in terms of potential losses derived from the uncertainty about instrument prices over time. VR, however, measures uncertainty surrounding the difference between the reported fair value and the “true” tradeable price that a bank could obtain if it were to sell an asset or transfer a liability at a specific point in time (i.e., the valuation date). Prudential and accounting frameworks have designated a set of mitigation measures to deal with VR uncertainty, which are interrelated. We have conducted a comprehensive analysis of bank VR, encompassing governance, regulatory, and prudential dimensions and summarize it in the paper linked below. We describe the VR framework for a bank through a holistic approach, provide a detailed analysis of the relationships between the accounting and the prudential frameworks, and outline a methodological approach for the prudential treatment of VR. We conclude that: 1) Regulators will increasingly challenge banks over their fair value determination practices as part of a supervisory approach that looks for consistency and rigor across the whole valuation process. In this context, banks will face governance challenges on the clarity of the roles and responsibilities for different functions (namely, finance and risk.) 2) The requirements of the current prudential regulatory framework do not ensure that banks build a capital buffer large enough to address VR. Researchers and regulators should undertake additional studies to develop a sound and agreed upon methodology to identify and measure VR. 3) Regulators should require banks to provide more extensive disclosure about their exposure to VR. Increasing clarity and transparency around bank risks will enhance public trust and enable more accurate estimations of the risk embedded in banks’ balance sheets by observers and analysts. This would also be reflected in bank share prices.

Modern Methods of Business Valuation—Case Study and New Concepts

In the modern world, the terms enterprise value and valuation are of great importance. Knowledge about how much an enterprise is worth is of fundamental importance for both the owner of that company and investors when negotiating the price of an enterprise at the time of conducting a commercial transaction. The article presents the goals of the company’s valuation and characteristic stages of the company’s life at which such valuation is necessary. The article classifies the methods of enterprise valuation used today. On this basis, the valuation methodology is presented according to the MDI-R concept (Assets, Income, Intellectual Capital-Market), which in a broad spectrum measures the effectiveness of the company’s operations and, in accordance with the current features of good valuation, aims to determine the fair value of the company. The purpose of the article is to demonstrate the need to improve the code of conduct and valuation standards. As part of the implementation of the objective, multi-faceted and complex valuation issues are presented, as well as factors that may distort the determination of fair value. The methodology of the study is based on inferences about the methodology of business valuation, and verification is based on practical examples, by which a hypothesis on the existence of critical elements of valuation is verified that allows the use of broad subjectivity in estimating the value of assets. At the same time, the factors that determine the possibility of the existence of too wide a subjectivity in estimating assets, which is in contradiction with the features of good valuation, are presented. The attempt is made to draw attention to the threats arising from modern business valuation methodologies and their challenges in the future. Additionally, this article offers the authors’ proposed hybrid method MDI-R, which draws from existing solutions to improve their functionality and applicability.

Основні напрями впровадження міжнародних стандартів оцінки ринкової вартості майна, майнових прав та активів комерційних банків в Україні

In the article, on the basis of generalization of the international experience of valuation of the market value of property, property rights and assets of commercial banks, the proposals for harmonization of national valuation standards with the international ones are formed. The structural features of international and European standards of assessment are considered. It is emphasized that the European Valuation Standards (EVS 2016) contain elements of the European legislative framework that are related to the financial valuation of property, which allows for various types of financial valuation of tangible and intangible assets. It is found that the difference between these standards is their large structural detail and focus on examining the specific specifics of specific areas of evaluation work. The peculiarities of application as a base of valuation of the market value in the valuation of assets of commercial banks containing property rights are considered. The introduction of the Technical Document of the Automated Assessment Model to substantiate the practical implementation of the Unified Database of Assessment Reports of the State Automated Information and Telecommunication System provided by the legislation of Ukraine is substantiated; of the Technical Document of fair value determination according to the International Financial Reporting Standards is substantiated. Researched estimation of the market value of mortgage property in the case of mortgage lending by banks, which require improvement of professional national standards, are considered. The extension of existing national property and property valuation standards is justified by an approach to value appraisal using optional pricing models. The peculiarities of application of Black-Scholes dynamic model for estimation of market value of a commercial bank are considered. Because, in this sector, assets and liabilities are close in value because of the peculiarities of doing business, mainly at the expense of attracted funds.

Dividing the Spoils: Multilateral Contingent Fee Fights in Texas (Amicus Curiae Brief in Garza v. The Pruneda Law Firm)

When the American Bar Association's Standing Committee on Ethics and Professional Responsibility released its Formal Opinion No. 487 on contingent-fee splitting in June 2019, it was already a hot topic in Texas, with several recent cases in the courts of appeals presenting variations on the theme of multiple attorneys fighting over the spoils of successful litigation pursued on behalf of the same client. The factual scenarios run the gamut: – An attorney leaves his law firm and takes the contingent-fee client with him: Law Office of Thomas J. Henry v. Cavanaugh, No. 05-17-00849-CV, 2018 WL 2126936 (Tex. App.-Dallas May 7, 2018, pet. denied); Law Office of Thomas J. Henry v. Priscilla Ann Garcia, No. 13-18-00275-CV (Tex.App.-Corpus Christi, Feb. 21, 2019, no pet.). – Two attorneys in different law firms both work on a wrongful death case, and then have a falling out over who gets how much of the spoils: Alejandro L. Padua and The Padua Law Firm, P.L.L.C v. Jason A. Gibson, P.C. d/b/a The Gibson Law Firm and Jason A. Gibson, pending in the Fourteenth Court of Appeals under appellate case no. 14-17-00379-CV. – An out-of-state attorney and Texas attorney quarrel over fee sharing where out-of-state attorney was not authorized to practice law in Texas and the shared client had not consented in writing to fee sharing as required under Texas law: Dickens v. Jason C. Webster, P.C., No. 05-17-00423-CV (Tex.App.- Dallas, Dec. 31, 2018, no pet.). – A different attorney takes over to handle the appeal of a wrongful termination case that had resulted in a money judgment for the client, where the original attorney lacked appellate litigation capability, and the outcome is even more favorable to the shared client as a result of the appeal. Hilda Gonzalez Garza v. The Pruneda Law Firm, PLLC, No. 13-18-00222-CV (Tex.App.- Corpus Christi/Edinburg, June 6, 2019, motion for rehearing filed). The author’s amicus curiae letter brief in Garza v. Pruneda presents arguments why the Thirteenth Court of Appeals should grant rehearing en banc to give effect to a new Texas Supreme Court precedent on the proof necessary to establish entitlement to attorney’s fees, and to consider the ABA’s new opinion on division of contingent fees between successive attorneys in the same case. The ABA's attorney ethics opinion on fee-splitting was released shortly after the South Texas appellate court handed down its opinion affirming judgment for the original attorney for the full amount claimed even though he had not won the federal appeal for the client in the underlying case. See ABA Standing Committee on Ethics and Professional Responsibility. Fee Division with Client’s Prior Counsel. Formal Opinion 487 (Jun. 18, 2019); RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 40 cmts. b & c (2000) (On discharge, a lawyer may be entitled to the fair value of the lawyer’s services. Determination of fair value takes into account the proportion of work performed by the discharged lawyer, and the value of work contributed. The determination also may consider a contract amount prorated for work actually performed.).

English

The paper assesses the extent to which Malawian agricultural entities are complying with recognition and measurement requirements of IAS 41-Agriculture, for their agricultural produce and biological assets. The purpose of the paper is to investigate the extent to which Malawian agricultural entities are using the fair value accounting model proposed in IAS 41 for measuring their agricultural produce and biological assets; to establish the most common method utilized for measuring the agricultural produce and biological assets; and to identify the implementation challenges that agricultural entities face in complying with IAS 41, in particular, the determination of fair value. Questionnaires were used to collect the data. Thirty-two participants from Eastern Produce Malawi Limited and Sable Farming Limited participated in the research. Purposive sampling was used to identify the participants to the study. The findings indicate that most Malawian Agricultural entities recognize and measure their biological assets in accordance with IAS 41. However, there are challenges particularly with the determination of fair value. The findings indicate that most agricultural entities measure their agricultural produce and biological assets at fair value less estimated cost of sale at the point of harvest and fair value respectively. It was also established that present value of estimated future cash inflows is the most utilized method to determine the fair value of assets that are biological in nature. Key words: Biological assets, fair value, recognition, agriculture produce, disclosure.

Asset specificity and conditional accounting conservatism

AbstractAsset specificity, the redeployability of an asset to alternative uses, is a key determinant of an asset's resale value. Asset specificity has a direct impact on a firm's ongoing fair value determination, bankruptcy risk, liquidation value, and abandonment option. We document a significant negative association between asset specificity and conditional conservatism. Further tests reveal that this inverse relation manifests as bad news being less quickly incorporated in earnings as asset specificity increases. We find no difference in the extent to which good news is delayed in earnings for firms conditional on asset specificity. In addition, the documented association is stronger when asset specificity arises from lower within‐industry acquisition activity. The association is also more pronounced for firms that are in less competitive industries, have institutional investors, have limited access to the public debt market, and/or have more unsecured debt. Our findings are noteworthy for regulators and researchers given the recent interest in the determinants of conservatism.

Give Me Back My Money: A Proposed Amendment to Delaware's Prepayment System in Statutory Appraisal Cases

In 2016, the Delaware General Assembly amended Section 262 of the Delaware General Corporation Law to provide surviving corporations with the option to prepay stockholders in appraisal cases. Specifically, the amendment gives a surviving corporation the option to pay, in advance of a trial to determine the stock’s fair value, whatever amount per share that it chooses. Doing so cuts off the statutory interest on the prepaid amount, which theoretically should disincentivize investors from filing appraisal petitions solely to turn a profit from the statutory interest rate—a strategy known as “interest-rate arbitrage.” But in amending the statute, the General Assembly did not specify whether the petitioning stockholders must return to the corporation any amount by which the prepayment exceeds the Court’s determination of fair value. The resulting unknown has not only caused uncertainty among litigants and costly motion practice in the Delaware Court of Chancery—a consequence, ironically, that the legislative amendment was aimed at avoiding—but has also diminished the amendment’s effect on curbing interest-rate arbitrage and, more generally, appraisal arbitrage. This article explores the history behind the prepayment amendment, including the evolution of Delaware’s appraisal statute and two Court of Chancery cases in which the Court foresaw the need for an effective prepayment system. This paper also examines the legislative history of the 2016 amendment and other scholars’ suggestions for dealing with the statutory ambiguity. Finally, the article offers a new model for legislative reform, one that retains Section 262’s core and advances the policy objectives that underlie Delaware’s appraisal system.

Asset-Specificity and Accounting Conservatism

Asset specificity, the redeployability of an asset to alternative uses, is a key determinant of an asset’s resale value. Asset specificity has a direct impact on a firm’s ongoing fair value determination, bankruptcy risk, liquidation value, and abandonment option. Consistent with asset specificity reducing the demand for conservative accounting due to increased likelihood of false signals and constraint on managerial discretion on real activities, we document a significant negative association between asset specificity and conditional conservatism. Further tests reveal that this inverse relation manifests as bad news being less quickly incorporated in earnings as asset specificity increases. We find no difference in the extent to which good news is delayed in earnings for firms conditional on asset specificity. In addition, the documented association is stronger when asset specificity arises from lower within-industry acquisition activity. The association is also more pronounced for firms that are in less competitive industries, have institutional investors, have limited access to the public debt market, and/or have more unsecured debt. Our findings are noteworthy for regulators and researchers given the recent interests in the determinants of conservatism.

Financial capital appraisal in the system of industrial enterprise development management

The paper studies an objective appraisal of financial capital value in industrial enterprise development management. The authors draw attention to a limited scope of work in the area of financial management under application of a traditional approach to appraisal of enterprise financial capital value and describe a new advanced approach to this problem solving. The paper focuses on reformation of balance sheet statement, in which economic benefit and reserves of financial capital are included by the authors; the author’s methodology for appraisal of financial capital value and its application sphere are denoted. In accordance with a case study, we confirm possibility of more accurate appraisal of enterprise investment opportunities by taking into account economic benefit from reserve of liquidity and borrowing capacity, which increases financial capital value. The practical approval results affirm that application of proprietary methodology for appraisal of financial capital and its elements has practical utility in solving problems of determination of required amount of attracted foreign investments and problems of determination of fair value of company take of an external investor, which are aimed at minimizing risks of corporate ownership dissemination and improving managerial efficiency of an industrial enterprise.

Private firm pricing and propensity to go public: evidence from mutual funds holdings

Purpose The purpose of this study is to focus on mutual funds’ valuations of their US private firm holdings. According to extant academic literature, mutual funds’ boards of directors should assign prices to their private firm stocks based on their own determination of fair value. Design/methodology/approach This study investigates fluctuations in valuations of mutual funds holdings of private firms, and whether or not mutual funds managers are able to pick privately held firms that eventually undergo an initial public offer. Findings The study shows that private firm common stocks’ prices fluctuate much more than preferred stocks’; however, as expected, preferred stock is the most selected security type. This study also investigates these firms’ propensity to undergo an initial public offering (IPO). Results show that mutual funds allocated most of their capital to US private sector firms that underwent an initial public offering. Logit model results reveal that fund managers are able to pick privately held firms that will go public. Research limitations/implications Due to data limitations, the authors’ analysis does not control for venture capital ownership; an issue the authors plan to address in the future. Originality/value Though, research in this area may exist, the authors have not found academic literature related to holdings of private firms by mutual funds, pricing by funds’ boards of directors or the motives for such investments.

The Short and Puzzling Life of the 'Implicit Minority Discount' in Delaware Appraisal Law

The implicit minority discount, or IMD, is a fairly new concept in Delaware appraisal law. A review of the case law discussing the concept, however, reveals that it has emerged haphazardly and has not been fully tested against principles that are generally accepted in the financial community. While control share blocks are valued at a premium because of the particular rights and opportunities associated with control, these are elements of value that cannot fairly be viewed as belonging either to the corporation or its shareholders. In corporations with widely dispersed share holdings, the firm is subject to agency costs that must be taken into consideration in determining going concern value. A control block-oriented valuation that fails to deduct such costs does not represent the going concern value of the firm. As a matter of generally accepted financial theory, on the other hand, share prices in liquid and informed markets do generally represent that going concern value, with attendant agency costs factored or priced in. There is no evidence that such prices systematically and continuously err on the low side, requiring upward adjustment based on an implicit minority discount.Given the lack of serious support for the IMD in finance literature, this Article suggests that the Delaware courts may be relying on the IMD as a means to avoid imposing upon squeezed-out minority shareholders the costs of fiduciary misconduct by the controller. Where either past or estimated future earnings or cash flows are found to be depressed as a result of fiduciary misconduct, however, or where such earnings or cash flows fail to include elements of value that belong to the corporation being valued, the appropriate way to address the corresponding reduction in the determination of fair value is by adjusting those subject company earnings or cash flows upward.This approach to the problem of controller opportunism is more direct, more comprehensive in its application, and more in keeping with prevailing financial principles, than the implicit minority discount that the Delaware courts have applied in the limited context of comparable company analysis. The Delaware courts can therefore comfortably dispense with resort to the financially unsupported concept that liquid and informed share markets systematically understate going concern value.

FINANCIAL INSTRUMENTS’ MEASUREMENT IN ROMANIA: FROM CHALLENGE TO LESSON LEARNING

The objective of the paper is to provide an analysis on Romanian valuers’ perceptions of fair value determination and to show whether there exist a direct connection between the dimension of the developed activity and the valuers’ level of professional training. The developed analysis uses information being obtained through implementing a questionnaire addressed to Romanian valuers. The questionnaire followed information regarding main aspects in valuers’ professional activity: their professional training, their professional activity in the field of accounting for financial instruments, fair value measurement and also on some fundamental aspects related to the recent financial crisis. Second part of the analysis being develop in this study was dedicated to documenting an association between valuers’ professional activity and their professional training. Results document the sustainability of the proposed regression model and documents that when considering the national market of valuation services in the field of financial instruments, there is a direct connection between the dimension of the developed activity and the valuers’ level of professional training.DOI: http://dx.doi.org/10.5755/j01.em.17.1.2245

Rationalizing Appraisal Standards in Compulsory Buyouts

This Article makes several contributions to the literature on Delaware appraisal law. We first argue that the concern standard adopted by the Delaware courts as the measure of in share valuation proceedings is superior to its two main competitors, market value and third-party sale value, on grounds of both fairness and efficiency. Application of the going concern value standard has two important consequences. First, it is critical that going concern value be measured in a way that includes not only the present value of the existing assets of the corporation, but also the present value of the reinvestment opportunities available to and anticipated by the firm at the time of merger. Second, going concern value should not include the value of corporate control in a case where the merger creates control through the aggregation of previously dispersed shares. In that case, the benefits created by the aggregation of shares belong to the party that created the increased value.We address differently, however, the situation where a pre-existing controlling shareholder squeezes out the minority. Our concern here is the potential for a controlling shareholder to acquire the minority shares at a price that fails to reflect the firm's going concern value. Where a controller fails to present a valid discounted cash flow analysis and relies instead on a comparable company analysis that is based solely on historical data, the minority shareholders and the court are deprived of access to projections of future free cash flows of the firm. We therefore advocate that in this situation the courts adopt a penalty default in the form of a presumption that fair value includes the value of control as reflected in comparable company acquisitions. Such a presumption is consistent with common law doctrines of fiduciary duty and the entire fairness standard, as well as adverse evidentiary inferences drawn from failure to produce relevant evidence. The controller as faithful fiduciary can avoid the proposed presumption by preparing and submitting to judicial scrutiny a valid discounted cash flow analysis. The opportunistic controller, on the other hand, is subjected to a fair value determination that amounts to third-party sale value minus synergies.