ASSIGNMENT

NAME MUHAMMAD ASIF

ID NO 11150

DATE 11/06/2020

Mergers and acquisitions (M&A) and joint ventures are examples of

corporate investment decisions whose impact usually extend beyond
the economic boundaries of the individual decision-making firm, and
they are “one of the most important events in corporate finance, both
for a firm and the economy”.
The “managers acting as shareholders’ agents, decide in which assets
to invest, and how to finance those investments”, it is stated that “a
major part of financial research is concerned with the effect of
managerial decisions on the market value of the firm”. The effect of
MAJV on firms’ ex-post performance and risk has been examined and
the findings favor poor performance
The literature does not provide a unified theoretical or empirical
explanation as to why firms choose MAJV over other forms of
combining resources such as franchising and trademark agreements,
long-term buy/sell agreements, and one-time-only buy/sell
transactions to accomplish some objectives
The only consensus the empirical research has established is that
shareholders of target firms gain positive abnormal returns at the
announcement of M&As. On the other hand, the average return to the
acquiring firm’s shareholders is less clear and favors poor
performance
Poor performance following M&As means that the acquiring firms’
shareholders lose their wealth, on average, which suggests that M&As
are not always purely economically (maximizing firm value)
motivated. Indeed, the literature suggests that in addition to search
for the economic synergy, which is meant to maximize the acquiring
firm’s net present value of future profits, the acquiring firms’
managers acquire other firms due to the agency motives such as
“increasing the size of the firm, the opportunity to diversify, and
making himself less replaceable.