valueshowsupasgoodwillonthecombinedfirm’sbalance
sheet and is amortized over time.
7 See Chapter 3 for a fuller discussion of how to convert
operating leases to debt and R&D into capital assets.
8 In fact,analystsin theUnitedKingdomcoined theterm
EBBS(earningsbeforebad stuff)to represent thereported
operating earnings of some of the more aggressive firms.
9 Usingquirksinaccountingrules,afirmcancarveoutsome
ofitsassetsintoaspecialpurposeentityandhavetheentity
issue debt. If the assets carved out are low-risk (say
receivables),thedebtthatisissuedwilloftenhavealower
interest rate.
10 With a defined benefit pension plan,an increase in the
value of thepension assets(invested in stocks) can cause
overfunding. Note, though, that the reversewill happenif
stock prices drop.
11 Consolidation requiresthat 100 percent of therevenues,
EBITDA,anddebtofthesubsidiarybeshownaspartofthe
parent company’s balance sheet. The minority interest
representsthe portionof thesubsidiary firm thatdoes not
belong to the parent company.
12 This argument ismade in Simon Johnson, PeterBoone,
AlasdairBreach,andEricFridman,“Corporate Governance
intheAsianFinancialCrisis,1997–1998,”MITManuscript,
1999; T. Khanna and K. Palepu,“The Future of Business
Groups in Emerging Markets: Long-Run Evidence from
Chile,”Academy of Management Journal43, no. 3 (2000).