This report aims to evaluate the validity of corporate financial practices in the under-‐researched auto parts industry, additionally considering the ownership structure of companies because of a division in share distribution. Recent economic struggles have impacted the automobile industry, resulting in stagnating sales on a global scale (Haugh et al, 2010). This affects the auto parts industry, a direct supplier to automobile companies, aftermarket and exchange parts. Rising raw material costs have increased the pressure on auto parts manufacturers, as buyers disallow price increases. Market stimulus, mostly from Asia-‐Pacific, is forecast to increase total parts market by 20% by 2015 (Datamonitor, 2011).
Table of Contents
1. Executive Summary
2. Introduction
3. Dividend and Dividend Policy
3.1. Lintner's Model
3.2. Modigliani-Miller Theorem (MM; Miller & Modigliani, 1961)
3.3. Information Asymmetry & Signalling
3.4. The Free Cash Flow Hypothesis
3.5. Conclusion
4. Mergers & Acquisitions (M&A)
4.1. Overview of M&A Activity
4.2. A more in-depth look
4.3. Created synergetic value of one example deal
5. Ownership Structure
5.1. Ownership distribution
5.2. Ownership distribution and performance
5.3. Ownership identity and performance
6. Interrelationships
6.1. Dividend Policy and M&A
6.2. M&A and Ownership Structure
6.3. Dividend Policy and Ownership Structure
7. Conclusion
Research Objectives and Scope
This report evaluates the validity of corporate financial practices within the auto parts industry, specifically focusing on dividend policy, mergers and acquisitions (M&A), and ownership structure to determine if standard theoretical models hold true in this under-researched sector.
- Analysis of dividend payout patterns and the relevance of established models like the Modigliani-Miller theorem.
- Investigation of M&A trends, activity waves, and the impact of acquisition premiums on share price.
- Examination of ownership distribution and how the identity of shareholders affects corporate performance.
- Exploration of potential interrelationships between dividend policies, M&A behavior, and ownership structures.
Excerpt from the Publication
3.2. Modigliani-Miller Theorem (MM; Miller & Modigliani, 1961)
The Modigliani-Miller theorem is one of the most influential concepts in corporate finance. The theory, also called the ‘irrelevance principle’ (Dybvig, 1991), states that in perfect and complete financial markets, a firm’s value is unaffected by its dividend policy. MM argue that investors can create their own preferred income stream by the use of homemade dividends. Moreover, considering taxation, investors will form clienteles with preferences for particular levels of dividend yields; altering dividend levels only leads to a change in shareholder clientele.
Contrary to traditional models, which argue that share price is the sum of all future dividend payments (Hiller et al, 2010), the irrelevance principle states that companies need not pay dividends at all. In fact, 31% of companies in the auto parts industries (n=415) did not pay dividends in 2010. However, dividends of the remaining 69% are substantial and payout is widely spread (Range: 0-2.64, M=0.146, SD=0.32) (see Figure 4).
Summary of Chapters
1. Executive Summary: Provides an overview of the research purpose, findings, limitations, and the practical applications of the study within the auto parts sector.
2. Introduction: Defines the auto parts industry scope, market size, and the competitive landscape influencing global revenues.
3. Dividend and Dividend Policy: Analyzes the empirical validity of various dividend theories, including Lintner's Model and the Modigliani-Miller theorem, against current industry data.
4. Mergers & Acquisitions (M&A): Examines the motives for M&A activity, deal trends over time, and the impact of acquisitions on shareholder value.
5. Ownership Structure: Investigates the relationship between ownership distribution, shareholder identity, and corporate performance.
6. Interrelationships: Explores whether correlations exist between dividend policy, M&A activity, and ownership structure.
7. Conclusion: Summarizes the key findings and highlights how the auto parts industry deviates from theoretical expectations.
Keywords
Corporate Finance, Auto Parts Industry, Dividend Policy, Modigliani-Miller Theorem, M&A, Ownership Structure, Agency Cost, Shareholder Value, Market Efficiency, Information Asymmetry, Free Cash Flow, Institutional Investors, Capital Market, Financial Performance, Industry Analysis.
Frequently Asked Questions
What is the core focus of this research report?
The report investigates the application of mainstream corporate finance theories—specifically dividends, mergers and acquisitions, and ownership structure—within the context of the global auto parts industry.
What are the primary themes discussed in the work?
The study centers on three main pillars: the determinants of dividend payouts, the drivers and effects of M&A activity, and how the composition and identity of ownership influence firm performance.
What is the central research question?
The research aims to determine whether established corporate finance theories are validated by the empirical practices observed in the auto parts industry or if the industry's unique characteristics lead to different outcomes.
Which methodology was employed for the analysis?
The project utilizes a quantitative approach, analyzing data from 547 companies retrieved via the ThomsonOne database to test specific financial hypotheses against industry-wide evidence.
What does the main body of the work cover?
The body includes a theoretical review and empirical testing of dividend models, a study of M&A waves and premiums, an assessment of ownership concentration, and an investigation into the interdependencies between these variables.
Which keywords best describe the paper?
Key terms include Corporate Finance, Dividend Policy, M&A, Ownership Structure, Agency Cost, and Information Asymmetry.
How does the auto parts industry affect the validity of the Modigliani-Miller theorem?
The study finds that the irrelevance principle of the Modigliani-Miller theorem produces mixed results in the auto parts industry, likely due to imperfect market settings and specific company dividend behaviors.
What was observed regarding the relationship between M&A activity and ownership?
The report analyzed whether ownership concentration influenced M&A behavior, finding no significant evidence within the sampled data that corporate structure dictates M&A frequency or success.
- Quote paper
- Jon Jachimowicz (Author), 2012, Corporate financial practices of the auto parts industry, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/203161
