According to Agency Theory and Neoclassical Theory; New Ownership and Diversity of Public Sector Companies in Corporate Life Cycle

Document Type: Research Paper

Authors

1 Department of Accounting, Ali Abad Katoul Branch, Islamic Azad University, Ali Abad Katoul, Iran.

2 Department of Accounting, Ali Abad Katoul Branch, Islamic Azad University, Ali Abad Katoul, Iran

3 Department of Business and Economic, Linnaeus University, Växjö, Sweden.

Abstract

The purpose of this study is investigating and determining rate of seizing assets and acquisition other companies by public sector companies. We estimate this rate at various stages of the life cycle of the company. Therefore, according to their size and age, the companies have been divided into small, large, young, and mature groups, and for this purpose, we have collected data from a sample of 45 companies of the public sector from three Iranian provinces. We have tested our analyses from the viewpoints of agency and neoclassical theories and discussed the results of the independent t tests. The results showed that with increase in age and size, public sector companies are more likely to seize the fixed assets of other companies to restructure and achieve improved operations. However, in the case of assuming ownership of other companies done through buying the companies, most public sector companies do this in the middle of their lifetime and in the course of their growth.

Keywords


   [1] Arikan A.M., Stulz R.M., Corporate Acquisitions, Diversification, and the Firm’s Life Cycle, The Journal of Finance, 2016, 1, P.139-194.

   [2] Amihud Y., Lev B., Risk reduction as a managerial motive for conglomerate mergers, Bell Journal of Economics, 1981, 12, P.605–617.

   [3] Celikyurt U., Sevilir M., Shivdasani A., Going public to acquire? The acquisition motive in IPOs, Journal of Financial Economics, 2010, 96, P. 345–363.

   [4] Gomes J., Livdan D., Optimal diversification: Reconciling theory and evidence, Journal of Finance, 2004, 59, P.507–535.

   [5] Harford J.S., Mansi, A., and Maxwell, W.F., Corporate governance and firm cash holdings in the U.S., Journal of Financial Economics, 2008, 87, P.535–555.

   [6] Helwege J., Nellie L., Initial public offerings in hot and cold markets, Journal of Financial and Quantitative Analysis, 2004,39, P.541–569.

   [7] Jensen M. C., The modern industrial revolution, exit, and the failure of internal control systems, Journal of Finance, 1993, 48, P.831–880.

   [8] Jensen M.C., Agency costs of free cash flow, corporate finance, and acquisition, American Economic Review, Journal of Financial Economics, 1986, 87, P. 471–497

   [9] Jovanovic B., Rousseau P.L.,  The Q-theory of mergers, American Economic Review, 2002, 92, P.198-204.

   [10] Kuppuswamy V., Villalonga B., Does diversification create value in the presence of external financing constraints? Evidence from the 2007–2009 financial crisis, working paper, New York University, 2012.

   [11] Loughran T, Ritter J.R., Why has IPO Underpricing changed over time? Financial Management, 2004, 33, P.5–37.

   [12] Maksimovic V., Phillips G., Do conglomerate firms allocate resources in efficiently across industries? Theory and evidence, Journal of Finance, 2002, 57, P.721–767.

   [13] Matsusaka J. G., Corporate diversification, value maximization, and organizational capabilities, Journal of Business, 2001, 74, P.409–431.

   [14] Moeller S.B., Schliemann F.P., Stulz R.M., How does diversity of opinion and information asymmetry affect acquirer returns? Review of Financial Studies, 2007, 20, P. 2047–2078.

   [15] Mueller D.C., A life cycle theory of the firm, The Journal of Industrial Economics, 1972, 20, P.199–219.

   [16] Pastor L., Veronesi, P., Stock valuation and learning about profitability, The Journal of Finance, 2003, 58, P.1749–1789.

   [17] Shleifer A., Vishny R.W., Managerial entrenchment: The case of manager specific Investments, Journal of Financial Economics, 1989, 25, P. 123–139.

   [18] Stein J.C., Internal capital markets and the competition for corporate resources, The Journal of Finance, 1997, 52, P.111–133.

   [19] Warusawitharana M., Corporate asset purchases and sales: Theory and evidence, Journal of Financial Economics, 2008, 87, P.471–497.

   [20] Mulherin, J., Harold B.A., Comparing acquisitions and divestitures, Journal of Corporate Finance, 2000, 6, 117–129.