Critically Evaluate The Methodological Issues And Empirical Findings

Critically Evaluate The Methodological Issues And Empirical Findings Critically Evaluate The Methodological Issues And Empirical Findings Of The Following Paper: An â€" Coursework Example > Critically evaluate the methodological issues and empirical findings of the following paper: An examination of the long run performance of UK acquiring firms Whenever, there is an acquisition there are bound to be changes and repercussions on this action. The following article examines the impact of the gains to shareholders of firms that announce acquisitions of public firms, private firms, or subsidiaries of other firms. Acquisitions are substantial investments made by a firm. When a firm announces an acquisition, the wealth of acquiring-firm shareholders substantially increases, but however, the average dollar change in the wealth of the acquiring-firm’s shareholders when such acquisition announcements are made is negative when the firm doing the acquiring is a large firm. It’s been noted that the acquisitions made by small firms are profitable for their shareholders. Small firms make small acquisitions and this gives them small dollar gains. A large firm will make a large acquisition and this will result in large dollar losses. So, such acquisitions result in losses for shareholders it is because the losses incurred by a large firm are much higher than the gains realized by a small firm during acquisition. A sample study of some firms in the U. K and the profitability for small firms which do acquisitions is shown the Table1.The above table summarizes take-overs in the U. K , by firms which were considered during a sample study. It shows a majority of acquirers are concentrated in the top two deciles according to market capitalization. A total of 157 out of the 398 acquirers for market capitalization are available in the top decile. This table shows that the firms which are acquiring are smaller companies and such acquisitions are seen to be profitable for them. There are a number of explanations given as to why the size-effect occurs, meaning, why acquisitions made by small firms are profitable for their shareholders as compared to acquisitions ma de by large firms. Following are some explanations given for this size effect: The managers of large firms have an oversight and so pay more for their acquisitions and this results in losses during acquisitions. Large firms which suffer from poor returns pay out for acquisitions, with their equity and this results in loss for shareholders. Large firms make acquisitions when they do not have any more internal opportunities for growth and this results in losses when the firm makes an acquisition. Large firms which are interested in empire building would rather make acquisitions, than increase their payouts to shareholders. There is a price pressure effect on the stock price of the bidder, when a firm’s acquisitions are paid for from its equity, due to the activities of arbitrageurs. The incentives of managers in small firms are better aligned with their shareholders than is the case in large firms and that’s why their acquisitions are more profitable, when compared to that of lar ge firms, which are not interested in increasing payouts to their shareholders. Evidence of the size-effect is shown in acquisitions made by firms in the U. S. and the U. K.