1900-1930: When managerial finance emerged as a separate
field of study, the emphasis was on legal aspects of mergers, the formation of new firms and the various types of securities firms could issue to raise funds. During the Depression era, business failures caused the emphasis in managerial finance to shift to bankruptcy and reorganization, corporate liquidity and regulation of security markets. During this period, new rules were enacted and required firms to maintain and publicly disclose certain financial information.
Kinds of mergers
a. Conglomerate merger – combines firms in different
industries b. Horizontal merger – combines firms operating in the same business line c. Statutory merger – a combination of two or more firms in which one company survives under its own name while the other cease to exist as legal entities. d. Vertical merger – combines firms that have same customer/supplier relationship
1940-1950: Finance continued to be taught as a descriptive,
institutional subject viewed more from standpoint of an outsider than from the perspective of management. Financial manager emphasized liquidity – that is cash budgeting and management of short-term assets and liabilities were stressed and the scope of financial management began to widen primarily because the responsibilities associated with proper liquidity management included knowledge of accounts receivables activities, manufacturing operations and short- term financing activities.
1950-1960: Increased competition in established industries
reduced profit opportunities available to corporations. Financial managers shifted their focused toward techniques used to evaluate investment opportunities. Emphasis was given to finding investments that would improve the firm’s ability to generate profits in the future. A movement toward theoretical analysis began, and the emphasis of managerial finance shifted to managerial decisions regarding the choice of assets and liabilities necessary to maximize the value of the firm. This era is considered the birth of modern finance from which many of the decision making techniques are used today.
1970: marked by increased international competition, fast-
paced innovation and technological changes. Persistent inflation and economic uncertainty fuelled by deficits in government spending and in international trade. Changes in the business arena saw the beginning of a financial revolution. Firms discovered innovative ways to manage financial risk and finance their activities.
1980: The focused on valuation continued:
a. Inflation and its effects on business decisions b. Deregulations of financial institutions and the resulting trend toward large, broadly diversified financial services companies c. Dramatic increase in both the use of computers for analysis and the electronic transfer of information d. The increase importance of global markets and business operations e. Innovations in the financial products offered to investors
1990: In today’s fast-paced technological driven world, the
area of managerial finance continues to evolve. Mergers and acquisitions remain an important part of the financial world. The important trend in the new millennium includes: a. Continued globalization of business b. Ongoing adoption of electronic technology c. Regulatory attitude of the government