Corporate Finance and Governance

Corporate Finance and Governance

Title: Corporate Finance and Governance. Merger refers to the legal act of combining of two preexisting corporations to form a new company. Acquisition is the absorption of one company by another through the purchase of its assets. Bankruptcy, on the other hand, refers to an entity’s legal status of being unable to service the debts it owes to creditors (Boone, 2002). It occurs when the debtor files a petition with the bankruptcy courts. The petition can be filed by an individual or a corporation.

The Birds Limited Company, it can adopt various approaches to avoid the scenarios above. The business can avoid merger by reducing costs by consolidating departments within the firm. Streamlining and departments and responsibilities can help cut costs and prevent a possible merger. The company can avoid a potential acquisition by using the staggered board of directors’ approach (Clayman, Fridson, & Troughton, 2011). A group of directors is elected at different times for multiyear terms which can delay a possible takeover. The business can negotiate with its creditors to delay filing for bankruptcy and come up with a plan to settle their debts.

Business failure is caused by a range of factors that emanate from either the macro or the microenvironment. Bankruptcy is one cause of business failure. The fact that a business is unable to service its debts leads to the insolvent liquidation. A company cannot access financial assistance from the banks if declared bankrupt. Bankruptcy can seriously derail a company’s credibility.

Poor management can lead to business failure. Enterprises that are poorly managed suffer from mismanagement of funds. Issuing credit services to such corporations is hard, and the businesses end up closing down. The banks refrain from issuing credit services to such companies, and this has a telling effect on the banking sector. Operating a business in an industry that is not profitable can lead to business failure. High-profit businesses benefit the banking sector as much as the companies benefit from the banks. Such companies can boost the banking sector since they make up part of the key stakeholders in the industry.

Unprofitable businesses cannot have the spending power or the ability to acquire massive loans from the banks. The inability to acquire and service loans stagnates the development of the banking sector.

Corporate Finance and Dividend Policy

The dividend policy contains a set of guidelines a company applies to decide on the amount to pay the shareholders. Clayman et al.  (2011) acknowledge that the business has to consider a range of factors before settling on the appropriate approach when formulating dividend and capital structure policies. Business risk is one of the fundamental risks that put a company’s operations in jeopardy. The optimum debt ratio is lower in firms with a greater risk level. For instance, the risk level in a retail apparel company is much higher than that of a utility company. Therefore, the retail apparel company would have a lower optimal debt, a strategy to make the business attractive to the investors.

The company’s tax exposure is a determining factor in the formulation of the dividend policy. Debt payments are taxable. If a company’s tax rate is high, financing projects using debts is attractive because the tax deductibility of the debt payments helps the business shield some of the income from taxes (Clayman et al., 2011). Market conditions also impact the company’s capital structure condition. In a struggling market, investors may limit the company’s access to capital due to market concerns. The interest rates may be higher, and it would be advisable to wait until the market conditions return to a more normal state.

Corporate Finance Dissertation Titles
Corporate Finance Dissertation Titles

Financial flexibility is the company’s ability to raise capital in bad times. When raising capital in good times, a company must remain prudent to keep the debt level low. The lower the company’s debt level is, the more the financial flexibility it has. The growth rate also determines the approach the business uses (James Sunday, 2014). Growing businesses finance that growth through debts, their revenues are unstable and unproven. High debt loads are usually not appropriate. Established companies need less debt to finance their growth, and their incomes are stable. The established companies generate cash flow that can fund projects whenever they arise.

The board of directors is critical to the corporate finance governance and leadership in organizations. The BOD is the highest governing authority in the management structure at all publicly traded companies (Anand, 2008). The board of directors directs the company’s business. Good corporate governance is primarily based on the board’s leadership structure, board size, composition, director ownership and the roles and responsibilities. The board oversees the governance and the management of the business and to monitor the senior management’s performance closely. The BOD evaluates and approves the suitable compensation for the company’s CEO and approves the attractiveness of the dividends.

Among other core responsibilities of the board, it selects individuals to board membership and assess the performance of the board, board committees and other directors. The board reviews and approves the corporate finance and governance actions. The board also reviews and approves financial statement and financial reporting of the company (Anand, 2008).

It monitors the corporate performance and evaluates the outcomes by comparing them with the strategic plans and other long-term goals. The BOD controls the implementation of the management’s strategic plans. The Board reviews and updates the corporate finance practices to cater for developments within the micro and the macro environment. The BOD ensures that the business complies with internationally recognized governance standards. This has the implication that the BOD must be committed to upholding the best practices in corporate governance.

References

Anand, S. (2008). Essentials of corporate finance governance. Hoboken, N.J.: John Wiley & Sons.

Boone, A. (2002). Corporate finance policy. North Chelmsford, Mass.: CEO Press.

Clayman, M., Fridson, M., & Troughton, G. (2011). Corporate Finance. Hoboken: John Wiley & Sons, Inc.

James Sunday, K. (2014). Capital Structure and Survival Dynamic of Business Organisation: The Dividend Approach. JFA2(2), 20.

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Cross-Border Mergers Business Strategy

Cross-Border Mergers – A Success or Not?

Title: Cross-Border Mergers – Mergers are business transactions that happen between two companies where one takes over entirely or part of the other business. Cross-border mergers are mergers that take part between companies from different countries or nationalities. Cross-border mergers can be classified as either inward or outward; the former occurs where a foreign company acquires a domestic company and the latter occurring when an international company is wholly or partly purchased. These cross-border mergers have been on the rise since the 1990s and are increasingly taking place in different industries. Typical industries that these cross-border mergers take place include the pharmaceutical, automotive as well as telecommunications sector.

Cross-border mergers are a strategy for companies to expand into markets that they think are profitable and are a vital key to the success of their products and services. But due to the international aspect of these mergers, various challenges face the companies involved for example the difference in economic, cultural and institutional aspects and these can be a major impediment to the success of these mergers.

An example of a failed cross-border merger is the merger between Daimler-Benz from Germany and Chrysler from the United States of America. This merger took place in 1998, and the result was the formation of Daimler-Chrysler Company. This merger was viewed as the union of two great automotive companies but sadly it was not a success (Rosenbloom, 2010). Looking into the reasons for the failure of this cross-border merger, several issues can be found to be the reason behind its failure. One of the key reasons behind the failure of the merger was the cultural difference between the two countries.

The German cultures were seen to be the most dominant in the company, and this led to the satisfaction of employees at Chrysler who were predominantly American to drop off. This cultural mismatch is seen to be the main reason behind the failure of this merger and nine years late Chrysler was sold off to Cerberus Capital Management after a string of losses and employee layoffs.

Another reason behind the failure of the cross-border merger between Daimler and Chrysler was the differences between the two companies’ operating styles. The organizational structure implemented at Daimler was a tiered organization that had a clear chain of command and respect for authority.  This structure was a direct contrast to the approach at Chrysler that implemented a team-oriented and open plan (Pervaiz, M., and F. Zafar, 2014).

The result was a lack of harmony as well as opposing work styles between the German and American managers at the company. It can be seen that since Daimler was the one that took over Chrysler, it tried running the American company’s operations just like it was doing in Germany (Appelbaum, Roberts, and Shapiro, 2013). If this issue was to be avoided, a focus on the different organizational culture should have been carried out so as to define the various management styles, the similarities as well as the differences and tried to come up with a common ground that could be implemented in the merger.

To summarize the key factors behind the failure of the merger between Daimler-Benz and Chrysler, it can be deduced that the following three issues were behind it all:

  • Corporate cultural differences and values
  • Lack of trust between employees
  • Different organizational structures leading to a lack of coordination between the employees.

According to Qiu (2010) the failure of the Daimler-Chrysler merger had far-reaching financial implications and was a disappointment to what would have been one of the most successful mergers of all time. If this merger had worked out, the company would have had a significant stronghold on the automotive market making it one of the largest automakers in the world and giving it super profits and access to a vast customer base. The competitive advantage that stood to be gained by this merger would be second to none, but this was never to be.

This benefit would have been achieved by the design and production of joint projects by the two companies instead of still competing in the market as separate entities, yet they were from one stable. The merger would have been handled better by focusing on the general issues facing the companies and not the cross-border problems that led to the discontent displayed by the two. Integration workshops would have also been held in a bid to ease the cultural integration between the two companies as well as orient the employees to the new corporation corporate strategy

The result of this failed merger was a lesson to other businesses that would be having the plan to take part in cross-border mergers.

Bibliography

Appelbaum, Steven H., Jessie Roberts, and Barabara T. Shapiro. “Cultural strategies in M&As: Investigating ten case studies.” Journal of Executive Education 8, no. 1 (2013): 3.

Rosenbloom, Arthur H., ed. Due diligence for global deal making: the definitive guide to cross-border mergers and acquisitions, joint ventures, financings, and strategic alliances. Vol. 8. John Wiley & Sons, 2010.

Qiu, Larry D. “Cross-border mergers and strategic alliances.” European Economic Review 54, no. 6 (2010): 818-831.

Pervaiz, M., and F. Zafar. “Strategic Management Approach to Deal with Mergers in the era of Globalization.” International Journal of Information, Business and Management 6, no. 3 (2014): 170.

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