Statistical studies over the last forty-five years show that, although there are success stories, very many mergers and acquisitions do not result in the increased operating profits that economics ...textbooks would lead one to expect. As consultancy McKinsey have put it, ‘Anyone who has researched merger success rates knows that roughly 70% fail’. Yet—mysteriously—M&A activity has boomed across the globe, with a forty-fold increase in deals done each year now compared with four decades ago, in spite of the adverse general evidence. How can it be that talented, energetic, highly skilled, law-abiding, income-maximising participants in the M&A market will often promote mergers that lead to no operating gains, frequently with adverse effects on the wider economy too? Drawing on findings from a wealth of statistical analyses and case evidence from many businesses, the book presents answers to this merger mystery. In a synthesis of ideas from several disciplines, solutions are detected in misaligned incentives, distorted financial engineering and information asymmetry. By revealing how weaknesses at multiple points can interact and cumulate to produce inefficient outcomes, the discussion serves as a corrective to the overwhelmingly positive tone of most commentary on M&A, whilst also advocating changes in participants’ contracts, in taxation, and in regulation which could significantly reduce the number of mergers that fail. Designed to be accessible to a wide readership, the book will be of interest to investors, to M&A practitioners and commentators, to researchers and students of economics, political economy, finance, management and accounting, and—importantly—to policy makers working in these areas.
Abstract
Oscar Wilde suggests that a book on which critics are agreed must be a ‘very obvious and shallow production’. This review article on Anna Carabelli’s 2021 book (a volume which helpfully ...draws together the fruits of her more than forty years’ research into Keynes’s method and ways of thought) involves five books that seem to invite the critical dissent that Wilde would have applauded. In her book, Carabelli displays her customary scholarship in writing about Keynes himself but is briskly dismissive of almost all commentators on his treatment of uncertainty and method. In what may be termed a fourth degree of comment - commenting on her comments on others’ comments on Keynes - I take issue with some of her attacks, especially over the extent to which Keynes regarded convention as a stabilising factor and over whether Keynes is misinterpreted by ‘followers of Hume’. A puzzle Carabelli seems to miss concerns which Hume is leading these ‘followers’ – in terms of current controversy, the ‘old’, the ‘new’ or perhaps yet another Hume. The nature of Hume’s own response to his famous sceptical challenge to inductive reasoning is in dispute, and it is contentious which of his two major works better shows this. Also subject to fierce debate is the relation of the philosophy in Keynes’s 1921 Treatise on Probability to the economics in his 1936 General Theory. Carabelli’s detailed history of thought perspective on how Keynes’s ideas grew encounters both rival historical slants and comment from a more purely analytical angle.
This paper attempts to tease out some of the reasons why the history of M&A accounting has been so fraught. It compares the different M&A accounting regimes which have been tried over time in UK, US ...and international standards. It illustrates the quantitative impact of alternative accounting regimes on financial statements. It asks whether the resulting numbers make any difference to decisions and behaviour. It charts the rising scale of M&A expenditures which have accompanied the different accounting regimes. And it suggests that a number of historical developments have intensified the challenges posed by accounting for M&A - developments in firms' investment choice between M&A or new tangibles, in the role of intangibles, in means of payment for M&A, in stock market price movements, in the synergies created by M&A, and in 'creative accounting'.
This paper explores the dramatic fall in receipts of UK corporation tax (UKCT) from banks, and the widening gap between the global corporation tax recorded as payable in banks' financial statements ...and the UKCT receipts recorded by the tax authorities. It reviews possible explanations, including changes in tax rates, in operating profits, in deductions which reduce taxable profits, and in the share of profit originating in, or recorded in, overseas jurisdictions. It assigns significant roles to tax-deductible asset impairments and to the allocation of profits among different jurisdictions. It suggests reasons why the recovery in banks' global operating profits may not be accompanied by an early sharp recovery in UKCT receipts.
The essays by celebrated authors in this 1991 book cover themes fundamental to economics: the influence of benevolence, altruism, justice and religious principles in our treatment of others in ...society; and the bases of rationality in decision making under conditions of uncertainty. These common themes are given a wide range of perspectives by the contributors, who discuss whether not just a 'rational' but also a 'thoughtful' economic man can be fitted into a sophisticated version of the orthodox model of man as a self-interested maximizer, or whether a radical upheaval in economic analysis is needed to accommodate him. The book is an examination by leading authorities of not only the role of rationality and morals in economics, but also the implications of conventional conceptions of rational economic man for all economic study. It constitutes a powerful argument for greater richness and subtlety in ideas about the motivations of individuals in their economic behaviour.
This article analyses a problem at the intersection of accounting, law, and economics: the economically efficient operation of legal arrangements for company failure is undermined because valuations ...of assets and liabilities become unstable once a firm is distressed. The paper draws on the three disciplines to show the pivotal role of asset and liability valuations in answering the legal question, whether the firm is insolvent, and the economic question, whether the firm should fail and its assets be redeployed to an alternative use. U.S. and U.K. evidence reveals a disconcerting indeterminacy in these processes: the probability that a firm will fail affects significantly the valuations assigned to assets and liabilities; but at the same time the valuation of assets and liabilities itself determines the probability of failure. This balance sheet endogeneity is then shown to delay economically efficient management changes under debtor‐oriented U.S. Chapter 11, and to induce unnecessary costly bankruptcy with creditor‐oriented U.K. receivership/administration. Recent cases trace this endogeneity in failures involving often controversial countermanding of huge financial claims.
The essays by celebrated authors in this 1991 book cover themes fundamental to economics: the influence of benevolence, altruism, justice and religious principles in our treatment of others in ...society; and the bases of rationality in decision making under conditions of uncertainty. These common themes are given a wide range of perspectives by the contributors, who discuss whether not just a 'rational' but also a 'thoughtful' economic man can be fitted into a sophisticated version of the orthodox model of man as a self-interested maximizer, or whether a radical upheaval in economic analysis is needed to accommodate him. The book is an examination by leading authorities of not only the role of rationality and morals in economics, but also the implications of conventional conceptions of rational economic man for all economic study. It constitutes a powerful argument for greater richness and subtlety in ideas about the motivations of individuals in their economic behaviour.
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