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The underlying literature review examines the relation between a financially distressed firm’s capital structure and its decision for in- or out-of-court reorganization. Academic studies covering the US and Germany are considered and the two countries’ bankruptcy regimes are discussed given their legal proceedings’ influence on the bargaining dynamics in- as well as out-of-court. Particular focus is placed upon the discussion of bank lenders’ versus bondholders’ role in the reorganization of a distressed firm as well as upon alternative forms of funding such as via activist iestors or debtor-in-possession financing. Although the topic at hand is widely covered especially for the US and of great interest particularly since the financial crisis, areas for future research are identified relating to the still ambiguous role of bank financing, to the evolving bargaining dynamics given activist iestors’ increasing iolvement and to the role of bank pools as well as public debt restructurings in Germany.
Following no strict legal or institutional definition, restructurings relate to renegotiations of within the firm - as a nexus of contracts - combined agreements. This cumulative dissertation focuses on renegotiations that are triggered by financial distress and that are conducted with current or potential debt- and shareholders. In form of a literature review, the first manuscript systematizes the bargaining dynamics between existing capital providers and their influence on the choice for in- or out-of-court firm reorganizations in Germany and the United States. How the renegotiations of existing payment obligations are reflected in financial instruments accounting according to the IFRS and the capital structure of the distressed firm is further elaborated in a case-based instructional resource. The second part of the dissertation discusses restructurings through the acquisition of the distressed target. Specifically, the phenomenon of negative goodwill is studied that arises in business combinations with acquisition costs that are lower than the fair value of the targets’ net assets. For the exemplary case of Germany, manuscripts three and four examine the frequency, materiality and reasons for the by the IASB as anomalous acclaimed phenomenon together with iestors’ reactions to such transactions._x000D_ Keywords: Restructuring, financial distress, capital structure, IFRS, business combinations
TCC AG is a fast-growing bicycle production company and is headed by an ambitious top management team that wants to reinforce the firm’s expansion strategy with a sophisticated financial funding scheme. However, combined with an income decline, the financing strategy unexpectedly poses an existential threat to TCC. Complex accounting questions arise including the likely breach of a financial covenant, the detailed contractual clauses of a prospectus and the execution of a debt-for-equity swap. The underlying accounting requirements cover the recognition, the measurement and the disclosures of non-derivative financial instruments according to the International Financial Reporting Standards (IFRS). To foster a holistic understanding of financial instruments, the educational resource further combines the accounting concepts with related corporate finance theory. With this integrative approach, the case intends to encourage students’ critical reflection upon the far-reaching economic consequences resulting from accounting decisions.
With the introduction of IFRS 3 Business Combinations, the International Accounting Standards Board aligned the treatment of negative goodwill as a day-one profit to the reason of lucky buys that are officially addressed to as “bargain purchases”. However, among international standard setters and practitioners the doubt prevails that negative goodwill merely represents an accounting phenomenon. We aim to provide a new perspective to the discussion by testing whether upon initial announcement iestors perceive negative goodwill acquisitions as more value creating than a set of comparable transactions. Based on a sample of negative goodwill acquisitions by Germany’s yearly 160 largest listed firms from 2005 to 2014 and their matched counterparts, we indeed find a positive differential reaction in average cumulative (abnormal) returns for a three-day event window. The difference particularly holds when excluding adverse market conditions as a by the negative goodwill acquirer disclosed reason for the gain. Therefore, our evidence suggests that iestors might associate the occurrence of negative goodwill to actual lucky buys.
Die Bedeutung und Ausgestaltung von Financial Covenants in der Praxis lassen eine Abhängigkeit von den jeweiligen Konjunkturzyklen vermuten. Eine aktuelle Analyse zur Verbreitung und und zum Umgang mit Financial Covenants im deutschsprachigen Raum bestätigt eine deutlich positivere Einschätzung seitens der Unternehmen im Vergleich zu der Vorgängeruntersuchung aus dem Jahre 2009. Letztlich zeigen die Ergebnisse aber auch, dass sich Financial Covenants in den letzten Jahren etablieren konnten und mittlerweile ein äußerst relevantes Gläubigerschutzinstrument darstellen. Für Unternehmen bieten Financial Covenants darüber hinaus die Möglichkeit eines Frühwarnsystems für ihr Risikomanagement.
This study iestigates the prevalence of transactions resulting in negative goodwill under IFRS 3 Business Combinations. For a sample of 1,440 firm-year observations of listed German firms for the years 2005 to 2013, we find 96 negative goodwill transactions which give rise to an immediate gain recognized by the acquirer. Besides the fact that “bargain purchases” are not as rare as assumed by the standard setter when developing the current guidance, we document the reasons for the occurrence of negative goodwill. Our findings show that “bargain purchases” indeed account for the single most disclosed reason in our sample. However, alternative reasons such as future restructuring activities or market conditions are together equally likely to explain the existence of negative goodwill. Therefore, our results question whether the current treatment of negative goodwill as an immediate gain is most appropriate._x000D_ Keywords: Business combinations, negative goodwill, bargain purchase, badwill, IFRS 3
Die Vereinbarung von Financial Covenants soll aus Bankensicht den Gläubigerschutz verbessern und für die Unternehmen zu niedrigeren Kreditkosten führen. Eine empirische Analyse der mit Financial Covenants verbundenen Kosten und Nutzen aus Anwender- und Urhebersicht zeigt jedoch eine tendenziell unausgewogene Kosten-Nutzen-Balance. Banken und Unternehmen sind angehalten, sich für Fallstricke einer effizienten Vertragsgestaltung zu sensibilisieren.
Financial Covenants sind als kreditvertragliche Nebeereinbarungen zwischen Gläubigern und Schuldnern definiert. Ihre Auflagen und Vorgaben sind zusätzlich zur eigentlichen Zahlungsverpflichtung einzuhalten. Für die vorliegende Studie wurden rund 100 Unternehmen im deutschsprachigen Wirtschaftsraum befragt. Im Fokus standen die Verbreitung von und der Umgang mit Financial Covenants.