Fairness Opinions Research Articles

Does Voluntary Financial Disclosure Matter? The Case of Fairness Opinions in M&A

Does Voluntary Financial Disclosure Matter? The Case of Fairness Opinions in M&A

Acquirers’ Use of Fairness Opinions and Subsequent Goodwill Impairments

In this study, we examine the association between acquirers’ use of fairness opinions and subsequent goodwill impairment charges. Understanding both fairness opinions and goodwill impairments are of interest to investors, analysts, auditors, and regulators. Using a large sample of manually collected data, we find that when an acquirer purchases a fairness opinion, goodwill is more likely to be impaired and to be impaired with a greater amount, suggesting that acquirers purchase fairness opinions to justify overpayment and provide legal protection. Additionally, for acquirers with fairness opinions, we find some evidence that acquirers that purchase multiple fairness opinions and opinions from top financial advisors and advisors with smaller contingent fees are less likely to impair their goodwill and impair with a smaller amount. Our results are robust after controlling for endogeneity and using hazard model. Overall, we identify the existence of fairness opinions and opinion-related characteristics as an oversight mechanism that is associated with subsequent goodwill impairments.

Towards a Robust Intellectual Property and Technology Commercialization Platform at the University of the Philippines Los Baños (UPLB): The Case of DOST-PCAARRD-funded Research Projects

An intellectual property (IP) audit was conducted among 212 research projects funded by the Department of Science and Technology–Philippine Council for Agriculture, Aquatic, and Natural Resources Research and Development (DOST-PCAARRD) and implemented by the University of the Philippines Los Baños (UPLB) from 2010–2015. A total of 71 (33%) have the IP component only, while 17 (8%) have both IP and technology commercialization (TC) elements. Of the 17 research projects, 12 (71%) have undergone the technology readiness level (TRL) and are included in the 19 technologies funded by DOST-PCAARRD currently being prioritized by Technology Transfer and Business Development Office (TTBDO) for IP rights (IPRs) protection and TC. Of these technologies, six have ongoing licensing agreements with the private sector, and another three are groomed for a spin-off. All nine have undergone fairness opinion board (FOB) examination, while the remaining 10 are in various stages of IP protection and commercialization. A notable surge in patent application occurred in the first three quarters of 2017 when 14 applications representing 33% of the total patent applications in the last 16 years were filed in the IP Office of the Philippines. As of 2012, with financial support from local and foreign funding, UPLB has produced more than 200 technologies ranging from agriculture and biotechnology to machinery and postharvest technology plus other allied fields. Included in the list are Sinta papaya, BIO-N, Mykovam, virgin coconut oil, and Trichoderma. Some of which have reached the international market earning substantial income for the university and its inventors and breeders principally through royalties ranging from 3–10 % of the licensee’s gross sales. Additional seven technologies funded by other government funding agencies ripe for commercialization are open to manufacturers, distributors, and research service agreements.

The Strategic Choice of Peers in M&A Valuations

We examine the strategic choice of peer comparables in fairness opinions (FOs) used in M&A valuations. Using a hand-collected sample of peer comparable analyses and a regulatory shock to appraisal lawsuit risk, we show that target-sought FOs employ lower-valued peers when litigation risk is higher. Cross-sectionally, the bias is stronger when the target CEO is retained and owns fewer shares in the target. Although the selection of downward-biased peers reduces appraisal lawsuit likelihood, it is also associated with lower premiums. We conclude that FO valuations are driven, at least in part, by the strategic motive to mitigate litigation risk.

APPLICATION OF ACCRUAL-BASED GOVERNMENT ACCOUNTING STANDARDS AND OBTAINING FAIR OPINIONS WITHOUT EXCEPTIONS

Tujuan dari penelitian ini adalah untuk mengetahui dan mendeskripsikan perubahan organisasi yang terjadi pada pemerintah Kabupaten Gresik dalam rangka penerapan SAP akrual dan perolehan opini WTP dilihat dari aspek persiapan serta strategi yang dilakukan berdasarkan tahapan moving menurut Lewin (1951). Penelitian ini menggunakan pendekatan kualitatif dengan model penelitian studi kasus di bawah paradigma Post-positivis. Hasil penelitian ini antara lain dalam rangka penerapkan SAP akrual pemerintah Kabupaten Gresik telah melakukan berbagai persiapan yang dibuktikan dengan hasil yang diperoleh selama Empat tahun terakhir (Sejak tahun 2015) Laporan Hasil Pemeriksaan (LHP) atas Laporan Keuangan Pemerintah Daerah (LKPD) selalu mendapat opini Wajar Tanpa Pengecualian (WTP). Opini WTP ini diperoleh karena Laporan Keuangan Pemerintah Kabupaten Gresik telah disajikan secara wajar untuk semua hal yang material sesuai dengan Standar Akuntansi Pemerintahan. Untuk mempertahankan perolehan opini tersebut, tantangan yang dihadapi oleh pemerintah Kabupaten Gresik semakin kompleks tidak hanya mempersiapkan implementasi SAP dengan basis akrual tetapi juga merencanakan strategi agar terus bertahan untuk mendapatkan opini WTP.

Are Third-Party Fundamental Valuations Relevant in Public-Company Takeovers?

In U.S. M&A, target directors are effectively required to consider third-party financial valuations, summarized in a “fairness opinion,” before accepting a takeover offer. Critics argue that these valuations are not relevant for public companies, which can assess the desirability of the deal in terms of the market premium. I identify conditions under which a target’s pre-deal market price will not provide directors with sufficient information to assess a takeover offer, and test for whether fairness valuations provide incrementally relevant information. I find they can impound expected transaction synergies and unravel abnormal runups in the target’s stock price prior to the announcement, and may signal ex ante fundamental mispricing. I also find that providers bias their valuations to cater to their clients. This suggests that third-party fundamental valuation has a plausible role in the governance of public-company takeovers, and has flaws in its current implementation.

Pengaruh Sistem Informasi Akuntansi, Pengembangan Sumber Daya Manusia Terhadap Pengendalian Intern dan Laporan Keuangan yang Handal

The Boyolali District Government succeeded in obtaining a Fair Opinion without Exception (WTP) opinion from the Financial Supervisory Agency after conducting an audit of the Boyolali Regency's financial statements in 2016. The Accounting Information System and Human Resource Development System had a significant effect on Internal Control. Accounting Information Systems, Human Resource Development and Internal Control have a significant effect on Reliable Financial Statements. The population of this study is the Regional Work Unit (SKPD) which is responsible for making financial reports in Boyolali Regency, as many as 75 employees. The sampling technique in this study is the census. The results showed that the Accounting Information System has a significant effect on internal control. Human resource development has a significant effect on internal control. Accounting Information Systems have a significant effect on reliable financial statements. Human resource development has a significant effect on reliable financial statements. Internal control has a significant effect on Reliable Financial Statements. The results of the path analysis are known to track the development of human resources on reliable financial statements, which is the dominant or effective path to improving reliable financial statements.

Electronic communication techniques and their role in supporting the academic activities of university faculty members (An applied study piloted on the lecturers of Lebenese French University)

Usage of internet and ways to benefit from it in the field of scientific research and academic communication has become a necessity to keep pace with scientific and learning development by faculty members. The university need to provide a conducive environment for staff members to tap in to the technology for the purpose of developing their capacities in this field. The faculty members need to improve their capacities and skills to use the Internet technology in order to know and understand the latest developments in their specializations, whether in the areas of research or teaching. Therefore, most universities and institutions in the higher education in most of the countries throughout the world are connected to Internet, and many studies have indicated that universities are giving their faculty members opportunities to use the Internet and benefit from it for learning and research purposes. The objective of this study is to identify the various approaches of electronic communication and its role in supporting the academic activities of university lecturers. This study relied on the survey methodology. The study also used the survey methodology to get an insight into the scientific monitoring and the patterns and also the motives of university Lectures to use the electronic communication techniques. The sample focused on (50) respondents from the Lebanese French University male and female lecturer. We were selective in terms of the sample which was consisted of the faculty members at the Lebanese French University so they can express fair opinion on the reality of the academic work inside the university. The most significant results of the study is that the majority of respondents replied in the survey that they use the Internet as a source of research and academic information, the study demonstrated that most faculty members of both genders considered the Internet as a good source for achieving information.

The information content of Fairness Opinions in M&A: Evidence from Italy

One of the major sources of inefficiencies in M&A transactions is the asymmetry of information between the bidder and the target. Several disclosure strategies are used by bidders to convince target shareholders to tender their shares but also to convince their own shareholders about the value of the proposed deal. Target managers also try to communicate to their shareholders their appreciation of the offer. To add credibility to this communication, experts are often called on to express an independent opinion on the offer price, in a document called the Fairness Opinion (FO). While FOs have been found to have no effect on deal efficiency in the US, this study re-examines the issue by considering the actual content of the document, in terms of the valuation process that leads to the expert opinion, in the context of Italian M&As where FOs are mostly voluntary and often provide detailed information about target valuation. The results show that even in a setting where weak enforcement of disclosure regulations allows bidders and targets to choose the level and detail of disclosure, the quality of the content of FO has only a weak association with the performance of the deal, both in terms of bidder announcement returns and of post-deal market and operating performance.

Implementation of the SRD II Provisions on Related Party Transactions

In 2017 the European Union adopted amendments to the Shareholder Rights Directive enacted a decade earlier. Among the changes was a new Article 9c dealing with the topic of related party transactions (RPT). This paper analyses how that new provision has been implemented in a range of Member States and assesses its impact on the prior laws of those states. Compared with the initial proposals of the European Commission, Article 9c as adopted was considerably watered down. Allegedly inspired by the related party provisions of the UK Listing Rules, those proposals mandated disclosure at the 1% level of significance (measured typically by the value of the company’s assets), accompanied by a fairness opinion, and approval by the independent shareholders (majority-of-the-minority (MOM)) at the 5% level). As enacted, MSS were given a choice of MOM or board approval and freedom to set the criterion for triggering the approval requirement. The same freedom as to trigger was accorded to the MSS in relation to disclosure and the requirement for a fairness opinion was dropped. In consequence, MSS had a wide range of choices to make at the transposition stage. A major focus of this piece is an analysis of the choices actually made by the MSS (Part 3). This provides a basis for the assessment in Part 4 of the impact of Article 9c in moving the laws of the MSS towards a more demanding orientation. There are three main conclusions. First, the requirements of Article 9c for approval of RPT had limited impact. No MS which did not already have MOM adopted it in the transposition process. As for board approval, which was already widespread in the laws of the MSS, it is doubtful whether the transposition of the Article ensured the independence of the board members called upon to approve the transaction. Second, it is likely that the most important change required by the Article was public disclosure, even if shorn of the fairness opinion. The adverse impact of disclosure on the company’s share price is potentially capable of reducing the levels of wholly one-sided RPT. Public disclosure, although already required by the laws of some MSS, was not widespread. Third, and more optimistic, there is evidence that the process of transposing Article 9c caused MSS to review their laws on RPT more generally and, in some MSS, this provided an opportunity for reformers to secure changes beyond those required by the Article itself. This might be termed the “catalysing” effect of transposition. The outcome in any particular MS turns on the balance of power between reformers and conservatives, but transposition gives reformers the opportunity to make a case which might otherwise not have been available to them.

Analisis Perbandingan Kinerja Keuangan Pemerintah Daerah Yang Memperoleh Opini WTP Dengan Pemerintah Daerah Yang Memperoleh Opini Non WTP

The research aims to find out: empirical evidence of financial performance comparisons of District/city governments with unexempted fair opinions (WTP) and non WTP based financial performance ratios in West Sumatera province in 2015-2017. Selection of samples using purposive sampling method. The regional government's financial performance is measured by the ratio of regional financial independence, effectiveness ratio, efficiency ratio, operating expenditure ratio, capital expenditure ratio and growth ratio compared between local governments that have WTP and non WTP opinions are obtained through the financial statement of the Local government (LKPD) which has been audited by the Financial Audit Board of BPK. Hypothesis testing using different independent T-Test tests. The results of this research proved that there is a difference in financial performance from various financial ratios between the city/District government that obtained WTP and non WTP opinions, with the results thitung 2,207 >This 2.003 a significant value of 0.103>0.05. And there are differences in financial performance criteria of efficiency, effectiveness, shopping operations, capital expenditure and growth of PAD between the city/District government that obtained the opinion WTP and non WTP.

The Information Provision in the Corporate Acquisition Process: Why Target Firms Obtain Multiple Fairness Opinions

ABSTRACTUsing a hand-collected dataset for takeovers from 1996 to 2013, I examine why some target firms obtain a second fairness opinion and the associated wealth effects of doing so. I find that multiple opinions are more likely to be used in deals in which management/investment bank conflicts of interest are high—e.g., buyouts and stapled financing deals. In addition, the use of a second opinion has a significantly positive impact on target shareholders' wealth in these two types of deals. Fairness opinion valuation predominantly relies on accounting data, and the benefit of seeking a second opinion increases with a firm's earnings quality. Collectively, the results suggest that a second opinion is used to facilitate transactions.JEL Classifications: G34; G24; J33.

The Information Provision in the Corporate Acquisition Process: Why Target Firms Obtain Multiple Fairness Opinions

Using a hand-collected dataset for takeovers from 1996 to 2013, I examine why some target firms obtain a second fairness opinion and the associated wealth effects of doing so. I find that multiple opinions are more likely to be used in deals in which management/investment bank conflicts of interest are high -- e.g., buyouts and stapled financing deals. In addition, the use of a second opinion has a significantly positive impact on target shareholders’ wealth in these two types of deals. Fairness opinion valuation predominantly relies on accounting data and the benefit of seeking a second opinion increases with a firm’s earnings quality. Collectively, the results suggest that a second opinion is used to facilitate transactions.

PENGARUH PENERAPAN SAP DAN SPIP TERHADAP KUALITAS LAPORAN KEUANGAN PEMERINTAH DAERAH KOTA BOGOR DENGAN KOMPETENSI SDM SEBAGAI VARIABEL MODERATING

Local goverment financial statement in Bogor City for the last five years are still given fair opinion withthe exception by BPK. This research aims to determine effect of application Government AccountingStandards, and the Government Internal Control System on the quality of local goverment financialstatement in Bogor City with the Competence of Human Resources as moderating variable. The method ofthis research design is using survey methods with data collection method using questionnaires. Thepopulation in this research were employees in 39 financial administration officials in Regional Work unit(SKPD) of Bogor City, with using purposive sampling technique, so that the selected 195 employees thatthe research sample. The analysis technique used is MRA. The result of the analysis showed that simultantest or partial test, application of the Government Accounting Standards and Government Internal ControlSystem have significant impact on the quality of local government financial statement. The competence ofhuman resources as moderating variables can moderated the effect of the Government AccountingStandards and Government Internal Control System on the quality of local government financial statement.Coefficient of determination of 61,4 percent, while the rest 38,6 percent is explained by other variables.

The Wealth Effects of Fairness Opinions in Takeovers

This paper explores the wealth effects associated with a bidder's decision to solicit a fairness opinion in a takeover transaction. Using a hand‐collected sample with bidders’ filing proxy statements, this paper finds that the use of fairness opinions does not negatively affect bidder shareholders’ wealth, a finding that contradicts prior studies’ findings. In addition, I find a positive wealth effect associated with bidder use of fairness opinions in the post‐Rule 2290 period. Collectively, these results are consistent with a fairness opinion being used by bidder management as a means to facilitate transactions rather than a mechanism to entrench management.

Related Party Transactions: UK Model

This paper analyses the regulation of related party transactions in the UK through two comparative lenses, one external, the other internal. The external comparison is between English law and the law on RPTs in the United States, especially in Delaware. The internal comparison is between the English corporate law applying to all companies and the additional rules applicable to companies quoted on the London Stock Exchange, both those with a premium listing on the Main Market and those traded on the Alternative Investment Market. The first external comparison highlights two features of the general regulation of RPTs in the UK. The first is the adherence of English law to the classical concept of a fiduciary and the second is reluctance to use assessment of the substantive fairness of the transaction as a test for the legality of the RPT and, in consequence, its reliance on wholly procedural controls. The first feature made it difficult for the general law to handle RPTs with shareholders, including directors in their capacity as shareholders. The second came into prominence when the private-ordering model which underlies UK company law led to the shift of the procedural controls from the shareholders to the board. For both problems, UK statute law developed some work-arounds, but without comprehensive revision of these underlying characteristics of the general law. The comparison with the rules for publicly traded companies shows how rules might develop when the starting point is a functional one. Substantial shareholders are as much subject to the constraints as directors and fairness opinions are routinely utilised. However, exchanges have become subject to much sharper regulatory competition than national legal systems. Rule-makers are cautious in their use of exchange rules to promote corporate governance objectives which go beyond what is internationally acceptable. As early as 1993 the London Stock Exchange seems to have pulled back from a widespread application of majority-of-the-minority shareholder approval for RPTs and this century it has wavered in its policies towards subjecting controlling shareholders to effective constraints on RPTs.

What is a fair amount of executive compensation? Outrage potential of two key stakeholder groups

AbstractThe public discussion of executive compensation often centres on ‘fair’ and ‘unfair’ amounts and the public outrage over compensation that is deemed too high. The academic literature states that such outrage can lead to outrage costs, pressuring firms to adjust compensation levels. However, it is unclear what a ‘fair’ compensation is for various stakeholders and how their fairness concerns relate to outrage constraints. Based on surveys among two key stakeholder groups (representative eligible voters and investment professionals), we provide evidence that fairness is an important criterion for both groups but that opinions on how large a fair compensation amount should be are widely dispersed. Moreover, personality traits systematically influence fairness opinions through self‐serving interpretations of distributive justice and personal risk attitudes, indicating that a ‘fair’ amount of executive compensation may strongly depend on the involved stakeholders. Investigating thresholds for outrage, i.e., amounts above which compensation is judged ‘unfairly’ high, we show that even though investment professionals care for fairness as well, ‘capital market outrage’ might not equate to ‘public outrage’. Our paper contributes to the literature on outrage constraints by linking individual fairness concerns to outrage potential and has implications for transparency of executive compensation and research on shareholder activism.

The Effects of Investment Bank Rankings: Evidence from M&A League Tables*

This paper explores how league tables, which are rankings based on market shares, influence the mergers and acquisitions market. A bank’s league table rank predicts its future deal flow, above and beyond other determinants. This creates incentives for banks to manage their league table ranks. League table management tools include selling fairness opinions (FOs) and reducing fees. Banks use such tools mostly when their incentives to do so are high: when a transaction affects their league table position or when they lost ranks in recent league tables. League table management seems to affect the quality of FOs.

THE ROLE OF AUDITOR COMPETENCY AND INDEPENDENCY ON AUDIT QUALITY: A CASE STUDY ON CPA FIRM IN JAKARTA

Public accountants are independent auditors who provide services to the public, especially in the field of audits of financial statements made by their clients. The task of Certified Public Accountants (CPA) is to examine and provide a fairness opinion on the financial statements of a business entity based on the standards set by the Ikatan Akuntan Publik Indonesia (IAI). The population in this study are auditors who work for Certified Public Accountants (CPAs) in Jakarta. Samples are taken using purposive sampling technique as many as 120 auditors. The independent variables in this study are competency and independency, while the dependent variable is audit quality. The data collection method is done using a questionnaire. The conclusion of this study is that auditor competency and independency affect audit quality significantly. Keywords: competency, independency, audit quality

Abstract 21118: A Systematic Review on the Risk of Mortality Related to the Timing of Coronary Artery Bypass Grafting Following Myocardial Infarction

Introduction: The optimal timing for coronary artery bypass grafting (CABG) following an acute myocardial infarction (MI) is a topic of controversy among cardiologists and cardiothoracic surgeons. We sought to perform a systematic review of the evidence. Methods: PubMed was searched for studies that compared mortality between patients who underwent CABG, at different time points, following an acute MI. The quality of evidence was assessed using the National Institute of Health (NIH) quality assessment tool for observational cohort and cross-sectional studies. Mortality was compared between groups who had CABG performed <24 hours (acute), 24-72 hours (sub-acute), and >72 hours (delayed) following MI. Results: Sixteen observational studies were identified (1 prospective, 15 retrospective) which included 94,841 patients. There were no randomized controlled trials (RCT). Five studies used data from official registries while 11 relied upon data from a single site. Two studies specified the MI type as NSTEMI, 2 as STEMI, and it was unspecified in 12. Mortality was assessed as ‘in-hospital’ in 10 studies, ‘perioperative’ in 5, and ‘one month’ in 1. Using the NIH quality assessment tool, we scored 12 domains on a dichotomous scale of ‘yes’, ‘no’, or ‘other’ and found the average number of ‘yes’ answers was 6.5/12 with a range of 4 to 8/12. A quantitative comparison of mortality risk between timing groups could not be performed due to heterogeneity between recorded baseline covariates across studies as well as heterogeneity between MI-type, timing cut-offs, and specific mortality endpoints across studies. Only 1 study used propensity-matching, most used some logistic regression but 4 did not adjust at all for baseline cofounders. Most studies found that mortality was increased when patients underwent CABG <24 hours following MI but there was no consistent difference in mortality between sub-acute versus delayed groups. Conclusions: The current evidence base for timing of CABG post-MI is poor, being composed of low to fair quality observational studies and expert opinion. Selection bias is a major concern for all studies that were reviewed. Well-conducted RCTs are urgently needed to better inform this important clinical question.