With the increase in companies issuing shares as a means of raising capital the way companies are monitored has changed. Incidents such as the Enron scandal serve as a reminder of directors‟ inclination to act in an opportunistic way, with the aim to increase their personal wealth at the expense of their Companies‟ shareholders. As a result of this Corporate Governance regulations have become more stringent in a bid to remove the agency problem, increase the transparency of organisations and protect shareholders. This dissertation looks at how six UK Plc‟s report to their shareholders regarding their merger and acquisition activity, to determine if they comply with the Best Practice guidelines for reporting to shareholders, laid out by academics. The
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level of communication they provide is considered to ascertain if there is any evidence that the agency problem is still evident within organisations. Using a content analysis of the company information collected the Companies are classified into one of four classifications, depending on the level of communication that they have provided to their shareholders. The role that communication with shareholders plays, in managing shareholder expectations, is also considered when determining if the promises made to shareholders have been fulfilled. This is because acquisitions can be considered a failure by shareholders, even if all promised outcomes have been achieved, because their expectations are higher than those of the Company. Failure to manage expectations indicates that the Company is not transparent enough to the shareholders.
Table of Contents
Chapter 1: Introduction
Chapter 2: Literature Review
The Agency Problem
Shareholder Communication and Expectations
Chapter 3: Methodology
Validity
Possible Limitations
Chapter 4: Findings
Travis Perkins Plc.
Serco Group Plc.
Smiths Group Plc.
WWP
Wolverhampton & Dudley Breweries Plc.
Hanson Plc.
Chapter 5: Analysis
Introduction
Travis Perkins Plc.
Serco Group Plc.
Smiths Group Plc.
WWP
Wolverhampton & Dudley Breweries Plc.
Hanson Plc.
Chapter 6: Conclusion
Research Objectives and Themes
This dissertation investigates how six UK-based public limited companies report to their shareholders regarding their merger and acquisition activities, specifically examining whether these reports comply with established academic best practice guidelines to manage shareholder expectations and mitigate the agency problem.
- Analysis of the agency problem in large corporations.
- Evaluation of shareholder communication strategies during M&A.
- Application of content analysis on corporate reporting data.
- Assessment of transparency and managerial accountability.
- Examination of the link between communication and perceived acquisition success.
Excerpt from the Book
The Agency Problem
Agency Theory is essentially the separation of ownership and control. In other words, those charged with making decisions within organisations do not generally bear the risk associated with the decisions they make. Agency theory has evolved from the risk-sharing literature of authors such as Arrow (1971) and Wilson (1968) in the 1960’s and early 1970’s, and in literature published by Berle & Means (1932), regarding the separation of ownership and control. Agency Theory expands on the idea, as written about by the above authors, that a risk-sharing problem arises when two co-operating parties have different attitudes to risk. This includes the problem of a difference of goals between the two parties.
In this research Agency Theory will be considered in the context of a large corporation, where the shareholders (the principals) own the organisation and employ a board of directors (the agents) to run the organisation on their behalf. The role of the board of directors, in this context, is to represent the shareholders’ interests, providing vigilance and expertise (Walters, Wright & Kroll 2006). A board comprising of independent, outside directors, as noted by Shen (2003) (as cited in Walters et al. (2006)) is likely to increase their vigilance. Increased vigilance leads to a decrease in the value of agency costs, which arise within a company as a result of agent opportunism, benefitting the shareholders.
Chapter Summaries
Chapter 1: Introduction: Provides an overview of the research background, outlining how corporate governance pressure impacts how companies must manage shareholder expectations during mergers.
Chapter 2: Literature Review: Discusses the theoretical framework, specifically Agency Theory and the critical importance of consistent, honest communication in managing shareholder perceptions.
Chapter 3: Methodology: Details the use of content analysis as the primary research method to evaluate communications from six selected companies against academic best practices.
Chapter 4: Findings: Presents empirical data on the six companies (Travis Perkins, Serco, Smiths Group, WPP, Wolverhampton & Dudley, and Hanson) and their specific M&A reporting activities.
Chapter 5: Analysis: Evaluates the findings by classifying the companies based on their compliance with communication guidelines and their transparency regarding merger outcomes.
Chapter 6: Conclusion: Summarizes the research findings, confirming that while all companies report on acquisitions, the quality and consistency of these reports vary significantly, affecting shareholder confidence.
Keywords
Agency Theory, Shareholder Reporting, Content Analysis, Travis Perkins Plc., Serco Group Plc., Smiths Group Plc., WPP Group, Wolverhampton & Dudley Breweries Plc., Hanson Plc., Corporate Governance, Merger and Acquisition, Transparency, Shareholder Expectations, Principal-Agent Relationship, Synergy.
Frequently Asked Questions
What is the fundamental objective of this dissertation?
The research aims to determine how six UK-based companies communicate their merger and acquisition progress to shareholders and whether this communication meets academic standards to minimize the agency problem.
What are the central themes of the work?
The central themes include Agency Theory, the separation of ownership and control, the role of transparency in shareholder relations, and the management of shareholder expectations during post-acquisition integration.
What is the primary research question?
The research seeks to answer: "How do companies report to their shareholders regarding their merger and acquisition activity?"
Which scientific method is employed?
The author uses content analysis, a systematic and objective technique, to evaluate secondary data sourced from company websites and annual reports.
What is covered in the main body of the text?
The body includes a literature review of Agency Theory, a methodological section explaining the research design, findings for six specific companies, and a detailed analysis of their reporting transparency.
Which keywords best characterize this study?
Key terms include Agency Theory, Shareholder Reporting, Content Analysis, Corporate Governance, and Merger and Acquisition Activity.
Why was Travis Perkins singled out as a high-performing reporter?
Travis Perkins is highlighted because it complied with all academic guidelines for reporting, maintaining consistent and honest communication that successfully managed shareholder expectations.
Why are companies like Serco, WPP, and Wolverhampton & Dudley classified in the lowest tier of reporting?
These companies are classified in Class 3 because, while they announced the initial deal, their subsequent communication regarding integration progress was sparse and relied heavily on generic annual report disclosures.
Does the author believe the agency problem can be entirely eliminated?
The author suggests that while the agency problem can be mitigated through stringent corporate governance and increased transparency, some degree of agency cost is inherent in the principal-agent relationship.
- Quote paper
- Anonym (Author), 2008, How do Companies Report to their Shareholders regarding their Merger & Acquisition Activity?, Munich, GRIN Verlag, https://www.grin.com/document/130834
