Reviews the book "Creating Shareholder Value," by Alfred Rappaport.

Using several benchmarks and operating performance measures, the results from this paper suggest that takeovers completed in the UK over the period 1985 to 1993 result in modest improvements in operating performance. Using a matching procedure similar to that employed by Loughran and Ritter [J. Finance 52 (1997) 1823], in which benchmark firms are selected on the basis of several pre-takeover characteristics, the median increase in post-takeover performance for acquiring firms ranges from 0.13% per annum to a statistically significant 1.78% per annum, depending on the definition of operating performance used and choice of deflator. Using the same matching scheme in a Healy et al. [J. Financ. Econ. 31 (1992) 135] methodology, in which post-takeover performance is regressed on a combined target and acquirer pre-takeover performance, reveals larger improvements in operating performance, ranging from 0.80% to a statistically significant 3.1%, again depending on the definition of operating performance employed and deflator chosen. While there is some evidence that factors such as industrial relatedness and the removal of the target CEO have an impact on post-takeover performance, method of payment is found to have an insignificant impact.

Reviews the book "The Economic Analysis of Accounting Profitability," by Jeremy Edwards, John Kay and Colin Mayer.

We investigate capital investment problems when a manager knows the costs of a set of available projects, while the owner only holds probabilistic beliefs about these costs. With mutually exclusive projects, an optimal policy can be defined by a series of cost targets, one for each of the possible projects. The project with the lowest reported cost relative to the target is chosen, and funded as if the cost were equal to the target. The optimal investment policy can deviate from a traditional policy of selecting the project with the highest, positive net present value (NPV) in a number of ways. First, under‐investment arises to limit the manager's ability to capture the economic rents. Second, when investment takes place, it is not always the project with the highest NPV that is implemented. Third, projects with lower cost variability can be favored. We extend the analysis to non‐mutually exclusive projects. With two independent projects, batch processing is superior to individual appraisal whenever both optimal individual appraisal cost targets are interior. Individual appraisal ignores the impact of individual targets on incentives to report the costs of other potential projects. Batch processing can improve individual assessment by cost effective switching of investment away from the individual projects and into the batch as a whole. The results suggest that the common practice of analyzing batches of capital requests in an annual capital budgeting cycle provides advantages in the organization's attempt to deal with asymmetric information and incentive problems.