Purpose -Acquisition currency is the possibility, enjoyed mainly by listed companies, of paying for acquisitions with paper (i.e. with conversion shares) instead of financial means, decreasing the participating share of the controlling shareholder as little as possible. The paper seeks to address the issues. Design/methodology/approach -The paper describes an original model to deal with the conceptual framework of the problem. Findings -The acquisition currency game is interesting and it is worth playing it. It is clear that at a certain point the mechanism breaks and it is useful to see what happens. A mechanism that continues to increase the P/E does not exist; at a certain point there must be a limit. Originality/value -The paper illustrates that the model convincingly describes some current behaviour of stock exchange prices and alerts about some dangerous situations.
The evaluation of the after tax cost of leasing is rather complex and financial operators often fail to emphasise the cost/benefit balance. We propose an analytical formula for the direct calculation of the true cost of leasing which does not involve the study of cash flows. Our discussion concerns the situation that we know best, the Italian case, which can easily be used more generally.
The adoption of a single currency in Europe is a pure political project. What we have learned from Greek crisis is that being in the Eurozone means that creditors can destroy a national economy and seize public assets if the government steps out of line. To keep the European project alive, we here call for a fundamental reform on sovereign debt: switching from a goal to which policy is constrained, back to a tool to serve policy aims. In a distressed country, lenders has the power to forces the borrower to accept and to adopt restrictive spending policies that defend their interest at the expense of citizen’s ones. Eventually, this leads inevitably to the loss of autonomy in borrower’s decisions on fiscal policy, spending policy, public properties. If the cause for this degenerative process is the privilege on sovereign debt, then we need to find a new framework that reclassifies the public debt as functional to human development rather than individual profits. A country shall not be allowed to repay a debt that goes beyond its repayment capacity. The maximum payback capacity shall be settled before the credit is granted as a fraction of its primary balance. As such, the amount of primary balance not pledged to the repayment of the debt shall be always available to the government to undertake investments, social or security expenses and to face unexpected events. If this rule were implemented, the capital market would be automatically regulated: the debt that exceeds that threshold would be automatically written-off.
Corporate finance management rules are written under the assumption that financing costs are fully deductible from taxable income. If this assumption is relaxed, such rules need to be revised. We review traditional management tools and propose a new set of guidelines for financial management. The tax reform introduced in Italy, which creates a partial tax deduction for financing costs, offers a case study to measure the impact of such rules on a firm's profitability. The general wisdom among academics and practitioners was of a further pressure on economic performance of firms due to a higher tax burden. Is this concern effective? Do Italian firms pay more taxes in the following years? We checked the effect of the new rules on a sample of 2,025 large Italian firms. We did not find a deep impact. Effects are limited to one sector, characterized by operating profitability on sample mean and financial leverage below sample mean. Policy makers are now advised to fine-tune this regulation or to abandon it.
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