3/21/2023 0 Comments Restaurant cashflow![]() Accordingly, firms with high-growth opportunities are anticipated to make better acquisitions compared with firms with low-growth opportunities and increase shareholders’ wealth (Arikan and Stulz, 2016). Hence, in the neoclassical view, acquisition decisions are believed to improve shareholder wealth (Salter and Weinhold, 1979 Seth, 1990), and managers and owners’ interests are aligned (Cho, 2009). Neoclassical view of acquisitions suggests that firms engage in acquisitions to reallocate their scarce corporate assets to more productive uses (Maksimovic & Phillips, 2002), and increase profitability (Shleifer and Vishny, 2003). Furthermore, acquisitions that are motivated with managerial overinvestment may be inferior acquisitions and may result in value-destruction rather than value-creation for shareholders (Jensen, 1986). In particular, returns from acquisitions depend on many other factors such as acquirer’s size (Moeller et al., 2004), method of payment (Alshwer et al., 2011), target characteristics (Harford et al., 2012), and financial constraints (Dogru, 2017). Empirical evidence, however, indicates that shareholders may not always enjoy positive wealth effects in acquisitions. Within this context, the neoclassical theory of acquisitions postulates that companies, acting in the best interest of shareholders, acquire another company only if the acquisition increases their value (Rosen, 2006). ![]() However, acquisitions are often associated with valuation concerns (i.e., liquid and/or fixed assets, etc.) and shareholders’ reactions to price movements before, during, and after the acquisitions both in the short and long-run. Acquisitions also have potential benefits to improve earnings, reduce costs, achieve greater market shares, and increase shareholders’ wealth (Kim and Zheng, 2014 Chatfield et al., 2011 Dogru, 2017). Theoretical and practical implications are discussed.Įxpansion through acquisitions has been a profound method for corporations because it provides acquiring firms an opportunity to grow without losing momentum in margins. Franchising firms also gain lower returns compared to non-franchising firms however, the availability of free cash flows exacerbates overinvestment problems in franchising firms. The results showed that firms with high-free cash flows gain lower returns compared to firms with low-free cash flows, suggesting that acquisitions reduce underinvestment problems but also increase overinvestment problems. The purpose of this study is to examine the concurrent effects of free cash flows, growth opportunities, and franchising on restaurant firms’ returns from acquisitions. Corporate finance and franchising theories collectively suggest that the value of acquisitions may depend on firms’ free cash flow capacities, growth opportunities, and organizational forms. However, why acquisitions increase or decrease firm value is not clear. While acquisitions can be an efficient business strategy, the extant literature presented evidence showing that acquisitions can be value–increasing or –decreasing investments. Restaurant firms extensively expand through acquisitions.
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