Analysis

A merger boom comparable to those of the $1960$s and mid$-1980$s occurred in the $1990$s and into the new century. The merger activity of the $1960$s was associated

with increasing stock prices and heavy use of pooling$-$of$-$interests accounting. The mid$-1980$s activity was associated with a number of leveraged buyouts and

acquisitions involving junk bonds. Merger activity in the early $1990$s$,$ on the other hand, appeared to involve primarily purchases with cash and standard debt

instruments. By the mid$-1990$s$,$ however, many business combinations were being effected through exchanges of stock. In the first decade of the new century, the

nature of many business acquisitions changed, and by late $2008,$ the merger boomhad slowed dramatically.

a$.$ Why were so many of the business combinations in the middle and late $1990$s effected through exchanges of stock?

b$.$ What factors had a heavy influence on mergers during the mid$-2000$s$?$ How did many of the business combinations of this period differ from earlier

combinations? Why did the merger boomslow so dramatically late in $2008$ and in $2009?$ What is the new focus since that time?

c$.$ If a major review of the tax laws were undertaken, would it be wise or unwise public policy to establish greater tax incentives for corporate mergers? Propose three

incentives that might be used.

d$.$ If the FASB were interested in encouraging more mergers, what action should it take with regard to revising or eliminating existing accounting standards? Explain