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Growth of Market Capitalization:
a)Growth of company's book-equity value as a measure of sum of its assets and retained profits.
b)premium ,capital market is ready to add to book value.
There is a strong correlation between differences in the growth of companies' market to book ratios and differences in their returns on book equity.
It is easier for a company to grow its market cap by increasing its return on equity than nu increasing its earnings growth in absolute terms.
Market to book ratios are rather the result of high returns on equity than strong absolute earnings growth.
No Strategic control:
Companies not big enough (in terms of book-equity) and lack necessary performance.
Operate in mature markets..soon will be taken over.
Control through performance:
High returns on little capital.Operate in narrow markets.Create value by applying proprietary know-how or technologies.
Should move into new markets or develop new products.If not,they will be taken over.
control thru size:
survive bacause of their sheer size,though they generate low returns.If they dont divest and grow ..prone to take over.
Full strategic control:
Generate high returns on huge capital base.
Role of investment bankers:
1)Markets must be transparent(transparency/fairness)
2)Cost of dealing shd be low(cost efficiency)-tx costs must be low
3)Information efficiency.
4)valuation efficiency.
Investment bankers act as network brokers.
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