Market manifestation of nonpublic information prior to mergers: the effect of ownership structure

Article Abstract:

Critics of the present disclosure system have hypothesized that positive market price movements in firms' stock before the disclosure of offers of mergers and acquisitions (M&As) are indicative of the disclosure systems' failure to guarantee all investors equal access to information. Research using event-type methodology was conducted to test returns for 121 sample firms to analyze the market manifestation of nonpublic information prior to M&As and if there is a correlation between target firms' ownership structures and the effect of publicly available information on firms' runups prior to M&As. Research results indicate that substantial market activity is discernible before disclosure of M&As and that there is an association between ownership structures, timing of activity, and price runups related to differences in information production correlated to firms' ownership control structures.

Acquisitions and mergers, Stock-exchange, Stock exchanges

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Efficiency of asset valuation rules under price movement and measurement errors

Article Abstract:

A linear aggregation model is used to illustrate that several parameters characterizing the economy affect the mean squared error (MSE) rule of valuation. It is the historical-cost valuation rule, and neither the current valuation rule nor the general-price-level valuation rule, that generates a statistically more accurate estimate of unobserved economic value of firm's assets. This is true for sufficiently large current price errors of measurement. Using definite price indexes at correspondingly suitable aggregation levels can yield the most accurate valuation. This study supports previous studies that assert a reluctance of accountants to deviate from historical cost even in conditions of low inflation and critical reaction to this rule of valuation from scholars.

Models, Finance, Accounting, Valuation, Assets (Accounting)

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