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Corporate Assets (corporate + asset)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?

THE JOURNAL OF FINANCE, Issue 6 2001
Vojislav Maksimovic
We analyze the market for corporate assets. There is an active market for corporate assets, with close to seven percent of plants changing ownership annually through mergers, acquisitions, and asset sales in peak expansion years. The probability of asset sales and whole-firm transactions is related to firm organization and ex ante efficiency of buyers and sellers. The timing of sales and the pattern of efficiency gains suggests that the transactions that occur, especially through asset sales of plants and divisions, tend to improve the allocation of resources and are consistent with a simple neoclassical model of profit maximizing by firms. [source]

Corporate assets as a trust: for whom are corporate officers trustees in insolvency? the role of incentives in maintaining the trust,

INTERNATIONAL INSOLVENCY REVIEW, Issue 2 2003
Ronald B. Davis
Uncertainty is a constant theme when corporations are in financial distress. Yet any successful restructuring of an insolvent corporation requires numerous stakeholders, including creditors, employees and suppliers, repose some degree of trust in those corporate officers who are trying to continue to operate the firm while restructuring it into a viable entity. This article looks at the issue of the positive and negative incentives that can be generated for corporate officers and directors from both their continuing control of corporate assets and their potential personal liability arising from corporate activity both before and after the corporation became insolvent. The potential role these incentives can play in providing a basis for the trust needed to meet the other governance challenges that arise in a restructuring is reviewed in the context of recent developments in Canada concerning the duties of corporate directors to creditors during insolvency. Also reviewed is the role of directors' insurance and indemnification in altering the incentives' effects on directors' behavior. Finally a critical appraisal is given of the present legal regime's provision for compromise of claims against corporate officers during restructuring, as well as the proposal to amend the law to allow complete exoneration of corporate directors from certain liabilities on insolvency. The article urges caution in altering the effects of incentives that may create the necessary basis for trust in the distressed corporation's officers amongst those stakeholders whose co-operation is crucial to restructuring. Copyright © 2003 John Wiley & Sons, Ltd. [source]

The Contributions of Stewart Myers to the Theory and Practice of Corporate Finance,

JOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2008
Franklin Allen
In a 40-plus year career notable for path-breaking work on capital structure and innovations in capital budgeting and valuation, MIT finance professor Stewart Myers has had a remarkable influence on both the theory and practice of corporate finance. In this article, two of his former students, a colleague, and a co-author offer a brief survey of Professor Myers's accomplishments, along with an assessment of their relevance for the current financial environment. These contributions are seen as falling into three main categories: ,Work on "debt overhang" and the financial "pecking order" that not only provided plausible explanations for much corporate financing behavior, but can also be used to shed light on recent developments, including the reluctance of highly leveraged U.S. financial institutions to raise equity and the recent "mandatory" infusions of capital by the U.S. Treasury. ,Contributions to capital budgeting that complement and reinforce his research on capital structure. By providing a simple and intuitive way to capture the tax benefits of debt when capital structure changes over time, his adjusted present value (or APV) approach has not only become the standard in LBO and venture capital firms, but accomplishes in practice what theorists like M&M had urged finance practitioners to do some 30 years earlier: separate the real operating profitability of a company or project from the "second-order" effects of financing. And his real options valuation method, by recognizing the "option-like" character of many corporate assets, has provided not only a new way of valuing "growth" assets, but a method and, indeed, a language for bringing together the disciplines of corporate strategy and finance. ,Starting with work on estimating fair rates of return for public utilities, he has gone on to develop a cost-of-capital and capital allocation framework for insurance companies, as well as a persuasive explanation for why the rate-setting process for railroads in the U.S. and U.K. has created problems for those industries. [source]

Corporate Cash Policy and How to Manage it with Stock Repurchases

JOURNAL OF APPLIED CORPORATE FINANCE, Issue 3 2008
Amy Dittmar
At the end of 2004 total U.S. corporate cash holdings reached an all-time high of just under $2 trillion,an amount equal to roughly 15% of the total U.S. GDP. And during the past 25 years, average cash holdings have jumped from 10% to 23% of total corporate assets. But at the same time their levels of cash have risen, U.S. companies have paid out dramatically increasing amounts of cash to buy back shares. This article addresses the following questions: What accounts for the dramatic increase in the average level of corporate cash holdings since 1980? And why do some companies keep so much cash (with one fourth of U.S. firms holding cash amounting to at least 36% of total assets) while others have so little (with another quarter having less than 3%)? Why do companies pay out excess cash in the form of stock repurchases (rather than, say, dividends), and what explains the significant increase in repurchases (both in absolute terms and relative to dividends) over time? The author begins by arguing that cash reserves provide companies with a buffer against possible shortfalls in operating profits,one that, especially during periods of financial trouble, can be used to avoid financial distress or provide funding for promising projects that might otherwise have to be put off. Such buffers are particularly valuable in the case of smaller, riskier companies with lots of growth opportunities and limited access to capital markets. And the dramatic increase in corporate cash holdings between 1980 and the present can be attributed mainly to an increase in the risk of publicly traded companies,an increase in risk that reflects in part a general increase in competition, but also a notable change over time in the kinds of companies (smaller, newer, less profitable, non-dividend paying firms) that have chosen to go public. At the other end of the corporate spectrum are large, relatively mature companies with limited growth opportunities. Although such companies tend to produce considerable free cash flow, they also tend to retain relatively small amounts of cash (as a percentage of total assets), in part because of shareholder concern about the corporate "free cash flow problem",the well-documented tendency of such companies to destroy value through overpriced (often diversifying) acquisitions and other misguided attempts to pursue growth at the expense of profitability. For companies with highly predictable earnings and investment plans, dividends provide one means of addressing the free cash flow problem. But for companies with more variable earnings and less predictable reinvestment, open-market stock repurchases provide a more flexible means of distributing cash to shareholders. Unlike the corporate "commitment" implied by dividend payments, an open market stock repurchase program creates what amounts to an option but not an obligation to distribute funds. The value of such flexibility, which increases during periods of increased risk and uncertainty, explains much of the apparent substitution of repurchases for dividends in recent years. [source]

Toward a New Corporate Reorganization Paradigm

JOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2007
Donald S. Bernstein
Chapter 11 is becoming an increasingly flexible, market-driven forum for determining who will become the owners of financially troubled enterprises. With increasing frequency, distressed companies are sold in Chapter 11 as going concerns. At the same time, distressed investors, including hedge funds and private equity investors, are actively trading the debt of such companies in much the same way that equity investors trade the stock of solvent companies. Market forces drive the troubled company's debt obligations into the hands of those investors who value the enterprise most highly and who want to decide whether to reorganize or to sell it. One way or the other, the Chapter 11 process is used to effect an orderly transfer of control of the enterprise into new hands, whether the creditors themselves or a third party. But if the market-oriented elements of this new reorganization process promise to increase creditor recoveries and preserve the values of corporate assets, other recent developments could present obstacles to achieving these goals. In particular, the increased complexity of corporate capital structures and investment patterns,including the issuance of second-lien debt and the dispersion of investment risks among numerous parties through the use of derivatives and other instruments,threatens to increase inter-creditor conflicts and reduce transparency in the restructuring process. These factors, coupled with provisions added to the Bankruptcy Code that selectively permit "opt-out" behavior by favored constituencies, could interfere with the ability of troubled companies to reorganize as the next cycle of defaults unfolds. [source]