Accounting numbers as market valuation substitutes: a study of management buyouts of public stockholders

Article Abstract:

Sixty-four management buyouts of firms publicly traded on the New York and American Stock Exchanges between 1973 and 1982 are analyzed for the degree to which managers participating in the buyouts experienced a conflict of interest due to their responsibility for establishing fair trading values for the stock they wished to purchase. In almost eery case, managers contracted with an outside appraisal agency or an investment banker to assess the fairness of the buyout terms they offered. Despite this practice of soliciting an objective evaluation, many management buyouts generate court cases in which public stockholders claim the compensation offered them in the buyout is inadequate. It is also noted that managers who choose to understate corporate income levels achieve reduced buyout prices, although this is far from accepted practice.

Services, Private companies, Corporations, Business enterprises, Accountants, Valuation, Leveraged buyouts

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Discriminating between reorganized and liquidated firms in bankruptcy

Article Abstract:

In 1981, Michelle White developed a bankruptcy model to identify companies that will emerge from bankruptcy filings as successfully reorganized firms and those that will not. This model was revised and amended as of 1984. A further testing of the revised model, using probit analysis techniques, indicates that two factors are most important in such differentiations: the amount of assets held by the firm that have not been used to secure debt (called the 'free assets percentage'), and the profitability changes experienced by the firm for the fiscal years preceding the bankruptcy filing.

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The effect of task predictability and prior probability disclosure on judgment quality and confidence

Article Abstract:

College students working toward a Master of Business Administration degree participated in a computerized experiment to test bankruptcy prediction processes and the students' ability to handle same. The experiment demonstrated that task predictability is positively related to predictive accuracy. Most of the 71 students participating in the experiment appeared to be overconfident at their own ability to predict bankruptcy.

Psychological aspects, Forecasts and trends, Forecasting

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