Purpose – The paper aims to present an exchange ratio for merging companies that incorporates the change in the level of riskiness. Design/methodology/approach – The paper is a theoretical one. Its main objective has been achieved exploiting standard modern finance results such as Capital Asset Pricing Model Capital Asset Pricing Model (CAPM). Findings – The paper offers a formula that determines a risk-adjusted exchange ratio that takes into account both risk and synergy. Research limitations/implications – Due to the fact that CAPM is applied and beta factors are required, the formula is fully applicable only to companies whose stocks are traded on a financial market. Empirical test of the exchange ratio formula (using, for instance, an event-study methodology) should be performed. Practical implications – The use of the formula allows the identification of whether the offered exchange ratio fully reflects the expected return/risk profile for stockholders of the merging companies. Originality/value – The paper should be useful in both theoretical and managerial conditions. It carries a way to embed relative riskiness of two companies into a simple formula.

Moretto, E., & Rossi, S. (2008). Exchange Ratio Determination in a Market Equilibrium. MANAGERIAL FINANCE, 34(4), 262-270 [10.1108/03074350810849297].

Exchange Ratio Determination in a Market Equilibrium

Moretto, Enrico
;
2008

Abstract

Purpose – The paper aims to present an exchange ratio for merging companies that incorporates the change in the level of riskiness. Design/methodology/approach – The paper is a theoretical one. Its main objective has been achieved exploiting standard modern finance results such as Capital Asset Pricing Model Capital Asset Pricing Model (CAPM). Findings – The paper offers a formula that determines a risk-adjusted exchange ratio that takes into account both risk and synergy. Research limitations/implications – Due to the fact that CAPM is applied and beta factors are required, the formula is fully applicable only to companies whose stocks are traded on a financial market. Empirical test of the exchange ratio formula (using, for instance, an event-study methodology) should be performed. Practical implications – The use of the formula allows the identification of whether the offered exchange ratio fully reflects the expected return/risk profile for stockholders of the merging companies. Originality/value – The paper should be useful in both theoretical and managerial conditions. It carries a way to embed relative riskiness of two companies into a simple formula.
Articolo in rivista - Articolo scientifico
Scientifica
Acquisitions and mergers; Exchange; Stocks;
English
Moretto, E., & Rossi, S. (2008). Exchange Ratio Determination in a Market Equilibrium. MANAGERIAL FINANCE, 34(4), 262-270 [10.1108/03074350810849297].
Moretto, E; Rossi, S
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/382339
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