Equity Valuation and Corporate Control.

Linda DeAngelo

116 citations0/0 files storedThe Accounting Review

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Financial Reporting and Valuation Research Corporate Finance and Governance Auditing, Earnings Management, Governance

Abstract

Abstract The proliferation of control contests for large public corporations at 50% + premiums above market Illustrates the wide divergence between open-market stock prices and equity exchange values. This paper considers equity valuation in corporate control transactions-e.g., management buyouts and hostile takeovers-that engender potentially severe manager-stockholder conflicts. These conflicts generate a demand for independent assessments of equity values by investment bankers who specialize in these appraisals. The paper provides evidence from (1) a large sample of fairness opinions on management buyouts, and (2) a small sample of investment bankers' working papers which indicates that investment bankers' valuation techniques make extensive use of accounting data. This demand for accounting information in equity valuation is distinct from that previously recognized in the capital markets or contracting literatures.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have 1981Auditor size and audit quality 1985Positive Accounting Theory 1982Financial Reporting: An Accounting Revolution.1980Interfirm Tender Offers and the Market for Corporate Control 1984Going Private: Minority Freezeouts and Stockholder Wealth 1981The Proper Role of a Target's Management in Responding to a Tender Offer

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2012Valuing and pricing IPOs 2007How Do Underwriters Value Initial Public Offerings? An Empirical Analysis of the French IPO Market*1994The collapse of First Executive Corporation junk bonds, adverse publicity, and the ‘run on the bank’ phenomenon 2008How Do Investment Banks Value Initial Public Offerings (IPOs)?2013Information Production by Investment Banks: Evidence from Fairness Opinions 2017

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