Wednesday, April 25, 2012

Are Mergers Successful?

So what is the success rate on a typical merger? Academic studies have indicated that about 70 percent of mergers ultimately destroy shareholder value, but a new study indicates that the number is closer to 60 percent, at least in the UK. One really interesting finding is that while an average merger destroys value, on average mergers as a whole create value. That is, the gains by the 40 percent of successful mergers more than outweigh the  losses by the 60 percent of failed mergers.

Tuesday, April 24, 2012

Corporate Ethics and Financial Markets

Some may view the goal of shareholder wealth maximization as too limited especially with regards to ethics, however, many in Finance have another view. The financial view regarding ethics is that if the market (society as a whole) values ethical conduct, it will be priced in the market. For example, Walmart's recent investigation into possible unethical and illegal bribery in Mexico resulted in a relatively large stock price decline. The meaning of the price drop is that the investors do not condone this behavior. In short, bribery is not a way to maximize shareholder wealth.