A company needs to analyze certain factors before framing their dividend policy. Type of Industry The nature of the industry to which the company belongs has an important effect on the dividend policy.
Cash[ edit ] Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the indirect control of the bidder's shareholders. Stock[ edit ] Payment in the form of the acquiring company's stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter.
They receive stock in the company that is purchasing the smaller subsidiary. Financing options[ edit ] There are some elements to think about when choosing the form of payment. When submitting an offer, the acquiring firm should consider other potential bidders and think strategically.
The form of payment might be decisive for the seller. With pure cash deals, there is no doubt on the real value of the bid without considering an eventual earnout.
The contingency of the share payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes are a second element to consider and should be evaluated with the counsel of competent tax and accounting advisers.
If the issuance of shares is necessary, shareholders of the acquiring company might prevent such capital increase at the general meeting of shareholders.
The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be modified and the decision maker should take into account the effects on the reported financial results.
On the other hand, in a pure stock for stock transaction financed from the issuance of new sharesthe company might show lower profitability ratios e. However, economic dilution must prevail towards accounting dilution when making the choice.
The form of payment and financing options are tightly linked. If the buyer pays cash, there are three main financing options: There are no major transaction costs. It consumes financial slack, may decrease debt rating and increase cost of debt. Transaction costs include fees for preparation of a proxy statement, an extraordinary shareholder meeting and registration.
If the buyer pays with stock, the financing possibilities are: Issue of stock same effects and transaction costs as described above.
Transaction costs include brokerage fees if shares are repurchased in the market otherwise there are no major costs.
In general, stock will create financial flexibility. Transaction costs must also be considered but tend to affect the payment decision more for larger transactions.
Finally, paying cash or with shares is a way to signal value to the other party, e. The following motives are considered to improve financial performance or reduce risk: This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.
This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products.
Increased revenue or market share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power by capturing increased market share to set prices.
For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts.
Or, a manufacturer can acquire and sell complementary products. For example, managerial economies such as the increased opportunity of managerial specialization. Another example is purchasing economies due to increased order size and associated bulk-buying discounts.
A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company.
Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company.
However, this does not always deliver value to shareholders see below.We examine explanations for corporate financing-, dividend-, and compensation-policy choices.
We document robust empirical relations among corporate policy decisions and various firm characteristics. valuation teriminin İngilizce İngilizce sözlükte anlamı A measure of size or multiplicity The process of estimating the market value of a financial asset or liability An estimation of something's worth.
For any discussion on research subject or research matter, the reader should directly contact to undersigned authors. Factors Affecting the Capital Structure in Textile and Garment Listed in Indonesia Stock Exchange DOI: /X grupobittia.com 84 | Page.
Acquisition. An acquisition/takeover is the purchase of one business or company by another company or other business entity. Specific acquisition targets can be identified through myriad avenues including market research, trade expos, sent up from internal business units, or supply chain analysis.
Transaction costs play an important role in a firm’s capital structure decision. Transaction costs associated with obtaining new external financing are higher than the costs of obtaining internal financing.