International Finance & Financial Management Essay

International Finance & Financial Management - Essay Example Part 1 Shareholders’ and stakeholders’ value: Freeman, Harrison, Wicks, Parmar, & Colle (2010) observe that the primary objective for any business is to maximize its shareholders’ value as well as stakeholders’ value. The increase in shareholders’ value primarily results from the growth in the business with growth in top-line (sales revenue) and also increase in the bottom-line (profit). The shareholders of the organization contribute equity capital to the organization, which is required by the organization to grow and develop its business. So it is highly important that the organization provides maximum possible return to its equity shareholders. A company takes part in growth strategy by taking the path of acquisition, by venturing into completely new areas and also in new business basically to help the business grow thereby contributing to the growth in its profit. This helps in generating effective returns for its shareholders who are considered the owner of the organization. The company should basically look at value maximization of its shareholders and provide for the risk being taken by the shareholders’ in proving capital to the organization. The stakeholders of a company comprise all the participants who take effective part in the operation of the company. The stakeholders primarily include the customers who are the most important part of any organization, the suppliers of raw materials, the creditors, the employees, the community, the Government, the environment and even the shareholders’ who are directly affected by the business activities. (Freeman, Harrison, Wicks, Parmar, Colle, 2010, pp.128-131) Potential value of Synergies due to Acquisition: In recent times there has been a rapid increase in Mergers and acquisition activities. Companies are taking part in these activities effectively to enhance the business growing opportunities contributing to increase in shareholders’ wealth. Bosecke (20 09) and Hunt (2009) observe that there is a set of complex reasons, which drive a firm to promote M&A activities. The Efficiency Theory clearly elucidates the main goal of M&A activities is to exploit synergies where synergy is basically the increased operational performance as a result of combined entity than that of single isolated firms. There may be positive synergies when the net combined effect of synergy produces more value than individual firms and if the synergy is not effective it causes negative synergy. There may be other synergies like Financial, operational and managerial synergies. The financial synergy basically results from lower cost, which calls for investment in unrelated business, which effectively reduces the systematic risk for the organization. Moreover capital costs can be reduced when the company grows in size and have access to cheaper capital. Sometimes larger companies basically venture outside to raise cheaper capital, as the cost of raising capital in countries like USA, Japan etc is very low. The companies, which are involved in mergers and acquisition internationally, can access the stock markets of those countries and in that case they have to comply with the specifications and regulations binding the process of accessing the international markets. This promotes international acquisition. The managerial synergy basically results when one less technically and functionally developed company derive benefit after getting merged with one technically and f