Leveraged Acquisitions and the Market for Corporate Control

What is the function of the market for corporate control? Mike Wright and two colleagues outline the advantages of an active market in corporate control and review the consequences of leveraged buyouts.     

Britain,EMU and the European economy

In January 1999, 11 member countries of the European Union ‘irrevocably’ locked the foreign exchange values of their currencies to the euro, and they committed themselves to abandon their currencies in favour of the euro in 2002. As a result, these countries ceased to operate independent monetary policies. Monetary policy for the whole euro‐zone became the responsibility of the European Central Bank (ECB), whose primary objective is to maintain a low and stable rate of price inflation for the euro currency. The rules governing Economic and Monetary Union (EMU) were laid down in the treaty of Maastricht in 1992. As conditions for entry to EMU, the treaty specified ‘convergence criteria’ which consisted of upper limits for several macroeconomic aggregates including, notably, a 3 per cent maximum for the ratio of the public sector deficit to GDP and 60 per cent for the ratio of public debt to GDP.1 In February 1998 the 11 applicant countries submitted statistical analyses relating to their satisfaction of these conditions. Despite doubts as to whether some of them had strictly met the conditions, the European Commission deemed them all eligible, and the euro was launched.2 The British government, though more clearly eligible than most other EU countries on the basis of the convergence criteria, decided to defer its decision on entry. In this paper we consider the arguments for and against Economic and Monetary Union, and in particular whether it would be in Britain’s interest to join. We begin with a brief review of the state of the European economy and an analysis of the first year performance of the new Euro currency. 1 Upper limits were also set on the rate of inflation, at 1.5 percentage points above the average inflation rate of the three countries whose inflation was the lowest, and on long term interest rates, at 2 percentage points above the average of the rates prevailing in the three low inflation countries. An additional condition applied to exchange rate stability relative to the EU average for the two years prior to entry.
1 Notable cases were Belgium and Italy with debt to GDP ratios of 122.2 per cent and 121.6 per cent, respectively. Presumably, these countries were allowed membership under Article 104c(2) of the treaty which allows the debt to GDP ratio to be exceeded if ‘. . . the ratio is sufficiently diminishing and approaching 60 per cent at a satisfactory pace’. The reader is left to judge whether Belgium and Italy fell within the ‘spirit’ of this article.
     

Widening the ‘representation gap'? The implications of the ‘lobbying act’ for worker representation in the UK

The Transparency of Lobbying, Non‐Party Campaigning and Trade Union Administration Act 2014 (the ‘Lobbying Act’) imposes tight restrictions on the campaigning and lobbying activities of civil society organisations in the UK, diminishing their capacity to represent the interests of working people and thus likely compounding the ‘representation gap’ within British workplaces. Along with austerity measures and employment law reforms, the legislation exemplifies the UK government's attempts to shift the balance of power further towards employers.     

Crossing the chasm with beacon products in the portable music player industry

Firms competing in new product categories face great technical and market uncertainty as they try to move from early adopters to mainstream markets (83, 93 and 111). While the management literature identified several factors that may contribute to adoption, the role of specific product models has been understudied. To address this gap, we studied portable digital music players (MP3 players) from 1987–2006 and tested the role of specific product models in market takeoff, convergence and product category evolution. We introduced the concept of beacon product, defined as a specific product model that has great appeal to customers and sends a strong signal about what they want.     

The information content of disaggregated accounting profitability: operating activities versus financing activities

This paper reports three empirical findings on the differential information content of the components of accounting profitability. First, the paper finds that the shareholder profitability driven by operating activities has a stronger association with annual stock returns than the shareholder profitability driven by financing activities. The finding provides empirical support for the FASB Financial Statement Presentation project, and the project suggests disaggregating accounting profitability into operating and financing activities. Second, the paper finds that the sustainable portion of operating profitability has a stronger association with annual stock returns than the unsustainable portion. This finding contributes to the literature by extending the two popular methods of breaking down operating profitability (DuPont analysis and operating liability leverage) into sustainable versus unsustainable operating income. Penman (Financial statement analysis and security valuation. McGraw-Hill, New York, NY, 2010) suggests disaggregating operating income into sustainable versus unsustainable operating income. Finally, the paper identifies the conditional persistence in Amir et al. (Rev Acc Stud 16:302–327, 2011) as one of the empirical attributes that affects the valuation usefulness of disaggregated accounting profitability. The conditional persistence measures the marginal contribution of disaggregated profitability to the persistence of aggregate profitability. This paper reports that the disaggregation is more useful in firms with significant differences in the conditional persistence of disaggregated components than in other firms. Test results are robust to controls for cross-sectional and time-series dependence in error terms.     

A SIMULATION ANALYSIS OF HERDING AND UNIFRACTAL SCALING BEHAVIOUR

We model the financial market using a class of agent‐based models in which agents’ expectations are driven by heuristic forecasting rules (in contrast to the rational expectations models used in traditional theories of financial markets). We show that, within this framework, we can reproduce unifractal scaling with respect to three well‐known power laws relating (i) moments of the absolute price change to the time‐scale over which they are measured, (ii) magnitude of returns with respect to their probability and (iii) the autocorrelation of absolute returns with respect to lag. In contrast to previous studies, we systematically analyse all three power laws simultaneously using the same underlying model by making observations at different time‐scales and higher moments. We show that the first two scaling laws are remarkably robust to the time‐scale over which observations are made, irrespective of the model configuration. However, in contrast to previous studies, we show that herding may explain why long memory is observed at all frequencies. Copyright © 2013 John Wiley & Sons, Ltd.     

Why Do Local South Korean Market Leaders Supply Retailer Grocery Brands?

This article examines why many of the leading South Korean brand manufacturers produce retailer brand products within their major product categories. The reasons identified include pressure from retailers, protection of other national brand product ranges, maintenance or improvements in working relationships, protection of other distribution channels, savings in marketing budgets, diversification of product lines, and changing competitive structures. Evidence is also provided of the dynamic nature of decision making relating to retail brand supply across the whole portfolio of brands which the manufacturer offers, rather than in respect of individual product brands or markets, the focus of much existing work.     

Healthcare costs and resource utilization in patients with severe aplastic anemia in the US

Abstract

Purpose: This study aimed to evaluate the healthcare resource utilization (HCRU) and costs for patients with severe aplastic anemia (SAA) using US claims data.

Methods: This retrospective, observational database study analyzed claims data from the Truven MarketScan databases. SAA patients aged ≥2?years identified between 2014 and 2017 who were continuously enrolled for 6?months before their first SAA treatment or blood transfusion, with a ≥6-month follow-up, were included. Baseline demographics and comorbidities were evaluated. Monthly all-cause and SAA-related HCRU and direct costs in the follow-up period were analyzed and differences were presented for all patients and across age groups.

Results: With an average follow-up period of 21.5?months, 939 patients were included in the study. Monthly all-cause and SAA-related HCRU [mean (SD)] were 1.65 days (2.61 days) and 0.18 days (0.70 days) for length of stay, 0.18 (0.23) and 0.01 (0.04) for hospital admissions, 0.25 (0.30) and 0.02 (0.07) for ER visits, 2.24 (1.40) and 0.46 (0.99) for office visits, and 2.90 (2.64) and 0.55 (1.31) for outpatient visits, respectively. On average, SAA patients received 0.15 (0.57) blood transfusions per month. Mean monthly all-cause direct costs were $28,280 USD ($36,127) [US dollars, mean (SD)]. Direct costs related to admissions were $11,433 USD (SD $25,040), followed by $624 USD ($1,703) for ER visits, $528 USD ($694) for office visits, $7,615 USD ($13,273) for outpatient visits, and $5,998 USD ($11,461) for pharmacy expenses. Monthly SAA-related direct costs averaged $7,884 USD (SD $16,254); of these costs, $1,608 USD ($7,774) were from admissions, $47 USD ($257) from ER visits, $127 USD ($374) from office visits, $1,462 USD ($4,994) from outpatient visits, and $4,451 USD ($10,552) from pharmacy expenses.

Conclusion: SAA is associated with high economic burden, with costs comparable to blood malignancies, implying that US health plans should consider appropriately managing SAA while constraining the total healthcare costs when making formulary decisions.     

The urban–rural divide,regional disaggregation and the convergence of crime

Potential regional variation in crime rates has been recognized as an issue of clear importance given its implications for the development and evaluation of theories of criminal activity, determining the appropriate level of disaggregation at which to undertake empirical analyses of crime and whether crime fighting policies should be constructed at a national or local level. Consequently, a literature has evolved examining the similarities in US regional crime rates and whether a national trend exists or is emerging. The present article extends the recent research into the emergence of a national trend by considering convergence in alternative classifications of crime using a data set subject to a higher degree of disaggregation than considered hitherto. The results obtained overturn previous findings obtained using more highly aggregated data, indicating the detection of convergence to be dependent upon the level of disaggregation considered. In addition, the extent of convergence detected is shown to vary across classifications of criminal activity and reflect anecdotally noted changes in the evolution of crime at a national level. The implications of the observed regional variation in crime for the urban–rural divide and theoretical, empirical and policy analyses are noted.