Financial Theory and Corporate Policy Essay Example | Topics and Well Written Essays - 1750 words

Financial Theory and bodily Policy - Essay ExampleSimilarly, economies of scope is also varied in nature Cost-based economies of scope, revenue-based economies of scope, and diversification-based economies of scope.Reduction in Expenses - A merger must result in adoption of new technologies, goals, strategies, and operational approaches in such a way that they cumulatively lead to cost reduction in delivering the services and thereby make the merged-entity more than competitive in garnering change magnitude sales and net margins.Enhanced Market Power and Reduced net profit Volatility - It is obvious that the acquired business should either add to the market share of the company or earn a fresh niche market of its own, so that volatility in earnings can be minimized and profitability is sustained. Earnings are sustained lonesome(prenominal) when sales performance constantly improves and that is where mergers semen handy in creating that extra edge over the competitors with the l east loss of time.Smooth Privatization - The ongoing sovereigns honor for deregulation and privatization resulted in cross-border movement of crown mostly into developing economies for acquiring controlling interests in companies existence privatized. Indeed, many developing countries could attract fresh cracking and modern technology into their otherwise obsolete universe sector businesses and make them competitive through cross-border mergers/acquisitions. Competency Buildup - In todays deregulated markets, competency of domestic businesses has become a must, to face the onslaught from multinationals. In this regard, mergers have come handy for consolidation and buildup of requisite denture of economies and scale of scope, to maintain the revenue stream with least volatility (Houston 2001). Tax Gains- Mergers and acquisitions attract capital gains revenue enhancement in the hands of the amalgamated company/acquired company on the sale of its assets and shares. However, the treatment of taxing capital gains is not the same globally. A few countries such as Singapore and Malaysia, tax capital gains on real estate or shares in real estate at special rates, while Hong Kong exempts capital gains. Indonesia and Thailand tax the capital gains arising on the sale of shares and other assets at the normal rates of tax.2. What sort of worrys ordinarily result in mergers get goinging to achieve all of the promised efficiency gainsFailure to anticipate a problem before the problem actually arises - Managements whitethorn unwittingly administer a merger process hoping to trace synergy or they may initiate a disastrous step hoping to bring cultural concretion between the acquired and the acquirer. One common underlying reason behind these acts could be that the acquirer firm may have no experience of such problems and thus are not sensitized to such probabilities. It is only in the hindsight that the analyst could say today that merger of copper business was a mistake, unless one increased its production capacities, to enjoy operating leverage. There are umpteen reasons as to why companies may fail to anticipate problems Failure to perceive the problem, when the problem does arrive - Once a merged unit faces unanticipated problems, the immediate requirement is to address the issues that became a hurdle for realization of anticipated benefits. But in reality, managements rarely perceive the problem that has actually face and reasons for the same could be many One, the