Several published studies claim that acquisition targets can be accurately predicted by models using public data. This paper points out a number of methodological flaws which bias the results of these studies. A fresh empirical study is carried out after correcting these methodological flaws. The results show that it is difficult to predict targets, indicating that the prediction accuracies reported by the earlier studies are overstated. The methodological issues addressed in this paper are also relevant to other research settings that involve binary state prediction models with skewed distribution of the two states of interest.

Research suggests that leveraged buyouts create value through significant operating performance improvements. There is little evidence that buyouts lead to widespread employee layoffs, wage reductions, or wealth transfers from bondholders. LBOs continue to be controversial, however. Future research should focus on the effect of buyouts on firms' strategic investments, buyout firms' performance under difficult economic conditions, and the frequency and costs of financial distress associated with buyouts. Research can also focus on improving the performance of public corporations by examining the individual contributions of debt, management ownership, and corporate governance changes to podt-buyout performance.

[This paper examines whether stock splits convey information about earnings. The results indicate that firms split their shares after a significant increase in earnings. Before the stock split announcement, the market expects these earnings increases to be temporary. The split announcement leads investors to increase their expectations that the past earnings increases are permanent. The evidence also suggests that the market's reaction to split announcements cannot be attributed to expectations of either future earnings increases or near-term cash dividend increases.]

Abstract ABSTRACT: This paper examines whether stock Splits convey Information about earnings. The results Indicate that firms split their shares after a significant Increase in earnings. Before the stock split announcement, the market expects these earnings Increases to be temporary. The split announcement leads investors to increase their expectations that the past earnings increases are permanent. The evidence also suggests that the market's reaction to split announcements cannot be attributed to expectations of either future earnings increases or near-term cash dividend Increases.

Victor L. Bernard, Robert C. Merton, Krishna G. Palepu, Mark-to-Market Accounting for Banks and Thrifts: Lessons from the Danish Experience, Journal of Accounting Research, Vol. 33, No. 1 (Spring, 1995), pp. 1-32

Financial reporting and disclosure are potentially important means for management to communicate firm performance and governance to outside investors. We provide a framework for analyzing managers’ reporting and disclosure decisions in a capital markets setting, and identify key research questions. We then review current empirical research on disclosure regulation, information intermediaries, and the determinants and economic consequences of corporate disclosure. Our survey concludes that current research has generated a number of useful insights. We identify many fundamental questions that remain unanswered, and changes in the economic environment that raise new questions for research.

Accounting-based dividend constraints in lending contracts are imperfect means of mitigating conflicts of interests between stockholders and bondholders since managers have flexibility to make accounting decisions to circumvent the covenants. This paper documents firms' accounting and dividend responses to an increase in the tightness of dividend constraints. Firms cut dividends and do not appear to make accounting changes to circumvent the dividend restriction. The magnitude of the dividend cut is proportional to the tightness of the dividend constraint. This suggests that accounting-based covenants are effective means for bondholders to restrict firmsś dividend policies.

Equity offers, Primary stock offers, Asset beta, Equity beta

Emerging markets like India have poorly functioning institutions, leading to severe agency and information problems. Business groups in these markets have the potential both to offer benefits to member firms, and to destroy value. We analyze the performance of affiliates of diversified Indian business groups relative to unaffiliated firms. We find that accounting and stock market measures of firm performance initially decline with group diversification and subsequently increase once group diversification exceeds a certain level. Unlike U.S. conglomerates' lines of business, and similar to the affiliates of U.S. LBO associations, affiliates of the most diversified business groups outperform unaffiliated firms.

We examine investor communication issues using the experience of CUC International. CUC had difficulty convincing investors that its marketing outlays were profitable investments, leading to stock misvaluation over an extended period. To resolve this problem, CUC adopted an accounting change and then underwent a leveraged recapitalization. Subsequently, it accelerated recap debt repayments and initiated a stock repurchase. CUC's experience suggests that accounting reports are not always effective in investor communication. While financial signals are more effective, their impact is not as immediate as predicted by prior research. The CUC case suggests that investor communications is a rich area for future research.