A Financial Perspective on Mergers and Acquisitions

The Free Cash Flow Theory of Takeovers: A Financial Perspective on Mergers and Acquisitions and the Economy Michael C. Jensen Harvard Business School [email  protected] edu  © Michael C. Jensen, 1987 â€Å"The Merger Boom†, Proceedings of a Conference sponsored by Federal Reserve Bank of Boston, Oct. 1987, pp. 102-143 This document is available on the Social Science Research Network (SSRN) Electronic Library at: http://papers. ssrn. com/ABSTRACT=350422 The Free Cash Flow Theory of Takeovers: A Financial Perspective on Mergers and Acquisitions and the Economy Michael C.Jensen* Harvard Business School [email  protected] edu From, â€Å"The Merger Boom†, Proceedings of a Conference sponsored by Federal Reserve Bank of Boston, Oct. 1987, pp. 102-143 Economic analysis and evidence indicate the market for corporate control is benefiting shareholders, society, and the corporate form of organization. The value of transactions in this market ran at a record rate of about $ 180 billion per year in 1985 and 1986—47 percent above the 1981 record of $122 billion.The number of transactions with purchase prices exceeding one billion dollars was 27 of 3300 deals in 1986 and 36 of 3000 deals in 1985 (Grimm, 1985). There were only seven billion-dollar plus deals in total, prior to 1980. In addition to these takeovers, mergers, and leveraged buyouts, there were numerous corporate restructurings involving divestitures, spinoffs, and large stock repurchases for cash and debt. The gains to shareholders from these transactions have been huge.The gains to selling-firm shareholders from mergers and acquisition activity in the period 1977-86 total $346 billion (in 1986 dollars). 1 The gains to buying-firm shareholders are harder Estimated from data in Grimm (1986). Grimm provides total dollar values for all merger and acquisition deals for which there are publicly announced prices amounting to at least $500,000 or 10 percent of the firm and in which at least on e of the firms was a U. S. company. Grimm also counts in its numerical totals deals with no publicly announced prices that it believes satisfy these criteria.I have assumed that the deals with no announced prices were on average equal to 20 percent of the size of the announced transactions and carried the same average premium. *Professor of Business Administration, Harvard Business School, and Professor of Finance and Business Administration, University of Rochester. The author is grateful for the research assistance of Michael Stevenson and the helpful comments by Sidney Davidson, Harry DeAngelo, Jay Light, Robert Kaplan, Nancy Macmillan, Kevin Murphy, Susan Rose-Ackerman, Richard Ruback, Wolf Weinhold, Toni Wolcott, and especially Armen Alchian.This research is supported in part by the Division of Research, Harvard Business School, and the Managerial Economics Research Center, University of Rochester. The analysis here draws heavily on that in Jensen (forthcoming 1988). 1 M. C. Je nsen 2 1987 to estimate, and to my knowledge no one has done so yet, but I estimate that they would add at least another $50 billion to the total. These gains, to put them in perspective, equal 31 percent of the total cash dividends (valued in 1986 dollars) paid to investors by the entire corporate sector in the past decade. Corporate control transactions and the restructurings that often accompany them can be wrenching events in the lives of those linked to the involved organizations: the managers, employees, suppliers, customers and residents of surrounding communities. Restructurings usually involve major organizational change (such as shifts in corporate strategy) to meet new competition or market conditions, increased use of debt, and a flurry of recontracting with managers, employees, suppliers and customers.This activity sometimes results in expansion of resources devoted to certain areas and at other times in contractions involving plant closings, layoffs of top-level and mi ddle managers and of staff and production workers, and reduced compensation. Change due to corporate restructuring requires people and communities associated with the organization to adjust the ways they live, work and do business. It is not surprising, therefore, that this change creates controversy and that those who stand to lose are demanding that something be done to stop the process.At the same time, shareholders in restructured corporations are clear-cut winners; in recent years restructurings have generated average increases in total market value of approximately 50 percent. Those threatened by the changes argue that corporate restructuring is damaging the U. S. economy, that this activity damages the morale and productivity of organizations and pressures executives to manage for the short term. Further, they hold that the value that restructuring creates does not come from increased efficiency and productivity; rather, the gains come from lower tax payments, broken contract s withTotal dividend payments by the corporate sector, unadjusted for inflation, are given in Weston and Copeland (1986, p. 649). I extended these estimates to 1986. 2 M. C. Jensen 3 1987 managers, employees and others, and mistakes in valuation by inefficient capital markets. Since the benefits are illusory and the costs are real, they argue, takeover activity should be restricted. The controversy has been accompanied by strong pressure on regulators and legislatures to enact restrictions to curb activity in the market for corporate control.Dozens of congressional bills in the past several years have proposed new restrictions on takeovers, but as of August 1987, none had passed. The Business Roundtable, composed of the chief executive officers of the 200 largest corporations in the country, has pushed hard for restrictive legislation. Within the past several years the legislatures of New York, New Jersey, Maryland, Pennsylvania, Connecticut, Illinois, Kentucky, Michigan, Ohio, Indi ana, Minnesota and Massachusetts have passed antitakeover laws.The Federal Reserve Board implemented new restrictions in early 1986 on the use of debt in certain takeovers. In all the controversy over takeover activity, it is often forgotten that only 40 (an all-time record) of the 3,300 takeover transactions in 1986 were hostile tender offers. There were 110 voluntary or negotiated tender offers (unopposed by management) and the remaining 3,100-plus deals were also voluntary transactions agreed to by management. This simple classification, however, is misleading since many of the voluntary transactions would not have occurred absent the threat of hostile takeover.A major reason for the current outcry is that in recent years mere size alone has disappeared as an effective takeover deterrent, and the managers of many of our largest and least efficient corporations now find their jobs threatened by disciplinary forces in the capital markets. Through dozens of studies, economists have accumulated considerable evidence and knowledge on the effects of the takeover market. Most of the earlier work is well summarized elsewhere (Jensen and Ruback (1983); Jensen (1984); Jarrell, Brickley and M. C.Jensen 4 1987 Netter (1988)). Here, I focus on current aspects of the controversy. In brief, the previous work tells us the following: †¢ Takeovers benefit shareholders of target companies. Premiums in hostile offers historically exceed 30 percent on average, and in recent times have averaged about 50 percent. †¢ Acquiring-firm shareholders on average earn about 4 percent in hostile takeovers and roughly zero in mergers, although these returns seem to have declined from past levels. †¢ Takeovers do not waste credit or resources.Instead, they generate substantial gains: historically, 8 percent of the total value of both companies. †¢ Actions by managers that eliminate or prevent offers or mergers are most suspect as harmful to shareholders. †¢ Golden pa rachutes for top-level managers do not, on average, harm shareholders. †¢ The activities of takeover specialists (such as Icahn, Posner, Steinberg, and Pickens) benefit shareholders on average. †¢ Merger and acquisition activity has not increased industrial concentration.Over 1200 divestitures valued at $59. 9 billion occurred in 1986, also a record level (Grimm, 1986). †¢ Takeover gains do not come from the creation of monopoly power. Although measurement problems make it difficult to estimate the returns to bidders as precisely as the returns to targets,3 it appears the bargaining power of target managers, coupled with competition among potential acquirers, grants a large share of the acquisition benefits to selling shareholders. In addition, federal and state regulation of 3See Jensen and Ruback (1983, pp. 18ff). M. C. Jensen 5 1987 tender offers appears to have strengthened the hand of target firms; premiums received by target-firm shareholders increased substanti ally after introduction of such regulation. 4 Some have argued that the gains to shareholders come from wealth reallocations from other parties and not from real increases in efficiency. Roll (1986) argues the gains to target firm shareholders come from acquiring firm shareholders, but the data are not consistent with this hypothesis.While the evidence on the returns to bidding firms is mixed, it does not indicate they systematically suffer losses; prior to 1980 shareholders of bidding firms earned on average about zero in mergers, which tend to be voluntary, and about 4 percent of their equity value in tender offers, which more often are hostile Jensen and Ruback (1983). These differences in returns are associated with the form of payment rather than the form of the offer: tender offers tend to be for cash and mergers tend to be for stock (Huang and Walkling, 1987).Some argue that bondholders in acquired firms systematically suffer losses as substantial amounts of debt are added to the capital structure. Asquith and Kim (1982) do not find this, nor do Dennis and McConnell (1986). The Dennis and McConnell study of 90 matched acquiring and acquired firms in mergers in the period 1962-80 shows that the values of bonds, preferred stock and other senior securities, as well as the common stock prices of both firms, increase around the merger announcement. Changes in the value of senior securities are not captured in measures of changes in the value of common stock prices summarized previously.Taking the changes in the value of senior securities into account, Dennis and McConnell find the average change in total dollar value is positive for both bidders and target firms. Shleiffer and Summers (1987) argue that some of the benefits earned by target and bidding firm shareholders come from the abrogation of explicit and implicit longterm contracts with employees. They point to highly visible recent examples in the airline See Jarrell and Bradley (1980), Nathan and Oâ⠂¬â„¢Keefe (1986), however, provide evidence that this effect occurred in 1974, several years after the major legislation. M. C. Jensen 6 1987 industry, where mergers have been frequent and wages have been cut in the wake of deregulation. But given deregulation and free entry by low-cost competitors, the cuts in airline industry wages were inevitable and would have been accomplished in bankruptcy proceedings if not in negotiations and takeover-related crises. Medoff and Brown (1988) study this issue using data from Michigan. They find that both employment and wages are higher, not lower, after acquisition than would otherwise be expected; however, their sample consists largely of combinations of small firms.The Market for Corporate Control The market for corporate control is best viewed as a major component of the managerial labor market. It is the arena in which alternative management teams compete for the rights to manage corporate resources (Jensen and Ruback, 1983). Understandin g this point is crucial to understanding much of the rhetoric about the effects of hostile takeovers. Takeovers generally occur because changing technology or market conditions require a major restructuring of corporate assets (although in some cases, takeovers occur because incumbent managers are incompetent).Such changes can require abandonment of major projects, relocation of facilities, changes in managerial assignments, and closure or sale of facilities or divisions. Managers often have trouble abandoning strategies they have spent years devising and implementing, even when those strategies no longer contribute to the organization’s survival, and it is easier for new top-level managers with no ties to current employees or communities to make changes. Moreover, normal organizational resistance to change commonly is lower early in the reign of new top-level managers.When the internal processes for change in large corporations are too slow, costly, and clumsy to bring about the required restructuring or change in managers efficiently, the capital markets do so through the M. C. Jensen 7 1987 market for corporate control. Thus, the capital markets have been responsible for substantial changes in corporate strategy. Causes of Current Takeover Activity A variety of political and economic conditions in the 1980s have created a climate where economic efficiency requires a major restructuring of corporate assets.These factors include: †¢ †¢ The relaxation of restrictions on mergers imposed by the antitrust laws. The withdrawal of resources from industries that are growing more slowly or that must shrink. †¢ Deregulation in the markets for financial services, oil and gas, transportation, and broadcasting, bringing about a major restructuring of those industries. †¢ Improvements in takeover technology, including more and increasingly sophisticated legal and financial advisers, and innovations in financing technology (for example, the strip financing commonly used in leveraged buyouts and the original issuance of high-yield non-investment-grade bonds).Each of these factors has contributed to the increase in total takeover and reorganization activity. Moreover, the first three factors (antitrust relaxation, exit, and deregulation) are generally consistent with data showing the intensity of takeover activity by industry. Table 1 indicates that acquisition activity in the period 1981-84 was highest in the oil and gas industry, followed by banking and finance, insurance, food processing, and mining and minerals. For comparison purposes, the table also presents data on industry value measured as a percentage of the total value of all firms.All but two of the industries, retail trade and transportation, represent a larger fraction of total takeover activity than their representation in the economy as a whole, indicating that the takeover market is concentrated in particular industries, not spread evenly throughout the corpo rate sector. M. C. Jensen 8 1987 Table 1 Intensity of Takeover Activity, by Industry, 1981-84 Percent Percent of Total of Total Takeover Corporate Industry Classification of Seller Market Valueb Activitya Oil and Gas 26. 13. 5 Banking and Finance 8. 8 6. 4 Insurance 5. 9 2. 9 Food Processing 4. 6 4. 4 Mining and Minerals Conglomerate Retail Trade Transportation Leisure and Entertainment Broadcasting Other a 4. 4 4. 4 3. 6 2. 4 2. 3 2. 3 39. 4 1. 5 3. 2 5. 2 2. 7 . 9 . 7 58. 5 Value of merger and acquisition transactions in the industry as a percentage of total takeover transactions for which valuation data are publicly reported. Source: W. T Grimm, Mergerstat Review (1984, p. 41). bIndustry value as a percentage of the value of all firms, as of 12/31/84 Total value is measured as the sum of the market value of common equity for 4,305 companies, including 1,501 companies on the New York Stock Exchange, 724 companies on the American Stock Exchange, plus 2,080 companies in the over-the -counter market. Source: The Media General Financial Weekly, (December 31, 1984, p 17) Many sectors of the U. S. economy have been experiencing slower growth and, in some cases, even retrenchment. This phenomenon has many causes, including substantially increased foreign competition.The slow growth has meant increased takeover activity because takeovers play an important role in facilitating exit from an industry or activity. Changes in energy markets, for example, have required radical restructuring and retrenchment in that industry, and takeovers have played an important role in accomplishing these changes; oil and gas rank first in takeover activity, with twice their proportionate share of total activity. Managers who are slow to adjust to the new energy environment and slow to recognize that many old practices and strategies are no longer viable find that takeovers M. C.Jensen 9 1987 are doing the job for them. In an industry saddled with overcapacity, exit is cheaper to accompl ish through merger and the orderly liquidation of marginal assets of the combined firms than by disorderly, expensive bankruptcy. The end of the competitive struggle in such an industry often comes in the bankruptcy courts, with the unnecessary destruction of valuable parts of organizations that could be used productively by others. Similarly, deregulation of the financial services market is consistent with the number 2 rank of banking and finance and the number 3 rank of insurance in table 1.Deregulation has also been important in the transportation and broadcasting industries. Mining and minerals has been subject to many of the same forces impinging on the energy industry including the changes in the value of the dollar. The development of innovative financing vehicles, such as high yield noninvestment-grade bonds (junk bonds), has removed size as a significant impediment to competition in the market for corporate control. Investment grade and high-yield debt issues combined were associated with 9. percent of all tender offer financing from January 1981 through September 1986 (Drexel Burnham Lambert, undated). Even though not yet widely used in takeovers, these new financing techniques have had important effects because they permit small firms to obtain resources for acquisition of much larger firms by issuing claims on the value of the venture (that is, the target firm’s assets) just as in any other corporate investment activity. Divestitures If assets are to move to their most highly valued use, acquirers must be able to sell off assets to those who can use them more productively.Therefore, divestitures are a critical element in the functioning of the corporate control market and it is important to avoid inhibiting them. Indeed, over 1200 divestitures occurred in 1986, a record level (Mergerstat Review (1986)). This is one reason merger and acquisition activity has not increased industrial concentration. M. C. Jensen 10 1987 Divested plants and asse ts do not disappear; they are reallocated. Sometimes they continue to be used in similar ways in the same industry, and in other cases they are used in very different ways and in different industries.But in both cases they are moving to uses that their new owners believe are more productive. Finally, the takeover and divestiture market provides a private market constraint against bigness for its own sake. The potential gains available to those who correctly perceive that a firm can be purchased for less than the value realizable from the sale of its components provide incentives for entrepreneurs to search out these opportunities and to capitalize on them by reorganizing such firms into smaller entities.The mere possibility of such takeovers also motivates managers to avoid putting together uneconomic conglomerates and to break up existing ones. This is now happening. Recently many firms’ defenses against takeovers appear to have led to actions similar to those proposed by th e potential acquirers. Examples are the reorganizations occurring in the oil and forest products industries, the sale of â€Å"crown jewels,† and divestitures brought on by the desire to liquidate large debts incurred to buy back stock or make other payments to stockholders.The basic economic sense of these transactions is often lost in a blur of emotional rhetoric and controversy. Managerial Myopia versus Market Myopia It has been argued that, far from pushing managers to undertake needed structural changes, growing institutional equity holdings and the fear of takeover cause managers to behave myopically and therefore to sacrifice long-term benefits to increase short-term profits.The arguments tend to confuse two separate issues: 1) whether managers are shortsighted and make decisions that undervalue future cash flows while overvaluing current cash flows (myopic managers); and 2) whether security markets are shortsighted and undervalue future cash flows while overvaluing ne ar-term cash flows (myopic markets). M. C. Jensen 11 1987 There is little formal evidence on the myopic managers issue, but I believe this phenomenon does occur.Sometimes it occurs when managers hold little stock in their companies and are compensated in ways that motivate them to take actions to increase accounting earnings rather than the value of the firm. It also occurs when managers make mistakes because they do not understand the forces that determine stock values. There is much evidence inconsistent with the myopic markets view and no evidence that indicates it is true: (1) The mere fact that price-earnings ratios differ widely among securities indicates the market is valuing something other than current earnings. For example, it values growth as well.Indeed, the essence of a growth stock is that it has large investment projects yielding few short term cash flows but high future earnings and cash flows. The continuing marketability of new issues for start-up companies with li ttle record of current earnings, the Genentechs of the world, is also inconsistent with the notion that the market does not value future earnings. (2) McConnell and Muscarella (1985) provide evidence that (except in the oil industry) stock prices respond positively to announcements of increased investment expenditures and negatively to reduced expenditures.Their evidence is also, inconsistent with the notion that the equity market is myopic, since it indicates that the market values spending current resources on projects that promise returns in the future. (3) The vast evidence on efficient markets, indicating that current stock prices appropriately incorporate all currently available public information, is also inconsistent with the myopic markets hypothesis. Although the evidence is not literally 100 percent in support of the efficient market hypothesis, no proposition in any of the social sciences is better documented. 5For an introduction to the literature and empirical evidence on the theory of efficient markets, see Elton and Gruber (1984, Chapter 15, p. 375ff), and the 167 studies referenced in the bibliography. For some anomalous evidence on market efficiency, see Jensen (1978). For recent criticisms of the efficient market hypothesis see Shiller (1981a; 1981b), Marsh and Merton (1983; 1986) demonstrate that the Shiller 5 M. C. Jensen 12 1987 (4) Recent versions of the myopic markets hypothesis emphasize increases in the amount of institutional holdings and the pressure funds managers face to generate high quarterly returns.It is argued that these pressures on institutions are a major cause of pressures on corporations to generate high current quarterly earnings. The institutional pressures are said to lead to increased takeovers of firms, because institutions are not loyal shareholders, and to decreased research and development (R&D) expenditures. It is hypothesized that because R&D expenditures reduce current earnings, firms making them are more like ly to be taken over, and that reductions in R&D are leading to a fundamental weakening of the corporate sector of the economy.A study of 324 firms by the Office of the Chief Economist of the SEC (1985a) finds substantial evidence that is inconsistent with this version of the myopic markets argument. The evidence indicates the following: †¢ Increased institutional stock holdings are not associated with increased takeovers of firms. †¢ Increased institutional holdings are not associated with decreases in R&D expenditures. †¢ †¢ Firms with high R&D expenditures are not more vulnerable to takeovers. Stock prices respond positively to announcements of increases in R&D expenditures.Moreover, total spending on R&D is increasing concurrent with the wave of merger and acquisition activity. Total spending on R&D in 1984, a year of record acquisition activity, increased by 14 percent according to Business Week’s annual survey. This represented â€Å"the biggest gain since R&D spending began a steady climb in tests depend critically on whether, contrary to generally accepted financial theory and evidence, the future levels of dividends follow a stationary stochastic process. Merton (1985) provides a discussion of the current state of the efficient market hypothesis and concludes (p. 0), â€Å"In light of the empirical evidence on the nonstationarity issue, a pronouncement at this moment that the rational market theory should be discarded from the economic paradigm can, at best, be described as ‘premature’. † M. C. Jensen 13 1987 the late 1970’s. † All industries in the survey increased R&D spending with the exception of steel. In addition, R&D spending increased from 2 percent of sales, where it had been for five years, to 2. 9 percent. In 1985 and 1986, two more record years for acquisition activity, R&D also set new records.R&D spending increased by 10 percent (to 3. 1 percent of sales) in 1985, and in 1986, R &D spending again increased by 10 percent to $51 billion (3. 5 percent of sales), in a year when total sales decreased by 1 percent. 6 Bronwyn Hall (1987), in a detailed study of all U. S. manufacturing firms in the years 1976-85, finds in approximately 600 acquisitions that firms that are acquired do not have higher R&D expenditures (measured by the ratio of R&D to sales) than firms in the same industry that are not acquired.Also, she finds that â€Å"firms involved in mergers showed no difference in their pre- and post-merger R&D performance over those not so involved. † I know of no evidence that supports the argument that takeovers reduce R&D expenditures, even though this is a prominent argument among many of those who favor restrictions on takeovers. Free Cash Flow Theory More than a dozen separate forces drive takeover activity, including such factors as deregulation, synergies, economies of scale and scope, taxes, managerial incompetence, and increasing globalization of U. S. markets. 7 One major cause of takeover activity, the gency costs associated with conflicts between managers and 6 The â€Å"R&D Scoreboard† is an annual survey, covering companies that account for 95 percent of total private-sector R&D expenditures. The three years referenced here can be found in â€Å"R&D Scoreboard: Reagan & Foreign Rivalry Light a Fire Under Spending,† Business Week, (, July 8, 1985, p. 86 ff. ); â€Å"R&D Scoreboard: Now, R&D is Corporate America’s Answer to Japan Inc. ,† Business Week, (, June 23, 1986, p. 134 ff. ); and â€Å"R&D Scoreboard: Research Spending is Building Up to a Letdown,† Business Week, (, June 22, 1987, p. 39 ff. ). In 1984 the survey covered 820 companies; in 1985, it covered 844 companies; in 1986, it covered 859 companies. 7 Roll (1988) discusses a number of these forces. M. C. Jensen 14 1987 shareholders over the payout of free cash flow,8 has received relatively little attention. Yet it has pla yed an important role in acquisitions over the last decade. Managers are the agents of shareholders, and because both parties are selfinterested, there are serious conflicts between them over the choice of the best corporate strategy.Agency costs are the total costs that arise in such cooperative arrangements. They consist of the costs of monitoring managerial behavior (such as the costs of producing audited financial statements and devising and implementing compensation plans that reward managers for actions that increase investors’ wealth) and the inevitable costs that are incurred because the conflicts of interest can never be resolved perfectly. Sometimes these costs can be large, and when they are, takeovers can reduce them.Free Cash Flow and the Conflict Between Managers and Shareholders Free cash flow is cash flow in excess of that required to fund all of a firm’s projects that have positive net present values when discounted at the relevant cost of capital. Suc h free cash flow must be paid out to shareholders if the firm is to be efficient and to maximize value for shareholders. Payment of cash to shareholders reduces the resources under managers’ control, thereby reducing managers’ power and potentially subjecting them to the monitoring by the capital markets that occurs when a firm must obtain new capital.Financing projects internally avoids this monitoring and the possibility that funds will be unavailable or available only at high explicit prices. Managers have incentives to expand their firms beyond the size that maximizes shareholder wealth. 9 Growth increases managers’ power by increasing the resources This discussion is based on Jensen (1986a). Gordon Donaldson (1984), in a detailed study of 12 large Fortune 500 firms, concludes that managers of these firms were not driven by maximization of the value of the firm, but rather by the maximization of â€Å"corporate wealth. He defines corporate wealth as â€Å" the aggregate purchasing power available to management for strategic purposes during any given planning period†¦. this wealth consists of 9 8 M. C. Jensen 15 1987 under their control. In addition, changes in management compensation are positively related to growth. 10 The tendency of firms to reward middle managers through promotion rather than year-to-year bonuses also creates an organizational bias toward growth to supply the new positions that such promotion-based reward systems require (Baker, 1986);.The tendency for managers to overinvest resources is limited by competition in the product and factor markets that tends to drive prices toward minimum average cost in an activity. Managers must therefore motivate their organizations to be more efficient in order to improve the probability of survival. Product and factor market disciplinary forces are often weaker in new activities, however, and in activities that involve substantial economic rents or quasi-rents. 1 Activities yielding substantial economic rents or quasi-rents are the types of activities that generate large amounts of free cash flow. In these situations, monitoring by the firm’s internal control system and the market for corporate control are more important. Conflicts of interest between shareholders and managers over payout policies are especially severe when the organization generates substantial free cash flow. The problem is how to motivate managers to disgorge the cash rather than invest it below the cost of capital or waste it through organizational inefficiencies.Myers and Majluf (1984) argue that financial flexibility (unused debt capacity and internally generated funds) is desirable when a firm’s managers have better information about the firm than outside investors. Their arguments assume that managers act in the best interest of shareholders. The arguments offered here imply the stocks and flows of cash and cash equivalents (primarily credit) that management can u se at its discretion to implement decisions involving the control of goods and services† (p. 3, emphasis in original). In practical terms it is cash, credit, and other corporate purchasing power by which management commands goods and services† (p. 22). 10 Where growth is measured by increases in sales. See Murphy (1985). This positive relationship between compensation and sales growth does not imply, although it is consistent with, causality. 11 Rents are returns in excess of the opportunity cost of the permanent resources in the activity. Quasirents are returns in excess of the opportunity cost of the short-lived resources in the activity. M. C.Jensen 16 1987 that such flexibility has costs; financial flexibility in the form of free cash flow (including both current free cash in the form of large cash balances, and future free cash flow reflected in unused borrowing power) provides managers with greater discretion over resources that is often not used in the shareholder s’ interests. Therefore, contrary to Myers and Majluf, the argument here implies that eventually the agency costs of free cash flow cause the value of the firm to decline with increases in financial flexibility.The theory developed here explains (1) how debt-for-stock exchanges reduce the organizational inefficiencies fostered by substantial free cash flow; (2) how debt can substitute for dividends; (3) why â€Å"diversification† programs are more likely to be associated with losses than are expansion programs in the same line of business; (4) why mergers within an industry and liquidation-motivated takeovers will generally create larger gains than cross-industry mergers; (5) why the factors stimulating takeovers in such diverse businesses as broadcasting, tobacco, cable systems and oil are essentially identical; and (6) why bidders and some targets tend to show abnormally good performance prior to takeover.The Role of Debt in Motivating Organizational Efficiency The a gency costs of debt have been widely discussed (Jensen and Meckling (1976); Smith and Warner (1979)), but, with the exception of the work of Grossman and Hart (1980), the benefits of debt in motivating managers and their organizations to be efficient have largely been ignored. Debt creation, without retention of the proceeds of the issue, enables managers effectively to bond their promise to pay out future cash flows. Thus, debt can be an effective substitute for dividends, something not generally recognized in the corporate finance literature. 12 By issuing debt in exchange for stock, Literally, principal and interest payments are substitutes for dividends. Dividends and debt are not perfect substitutes, however, because interest is tax-deductible at the corporate level and dividends are not. 12 M. C. Jensen 17 1987 anagers bond their promise to pay out future cash flows in a way that simple dividend increases do not. In doing so, they give shareholder-recipients of the debt the ri ght to take the firm into bankruptcy court if they do not keep their promise to make the interest and principal payments. 13 Thus, debt reduces the agency costs of free cash flow by reducing the cash flow available for spending at the discretion of managers. These control effects of debt are a potential determinant of capital structure. Managers with substantial free cash flow can increase dividends or repurchase stock and thereby pay out current cash that would otherwise be invested in low-return projects or wasted.This payout leaves managers with control over the use of future free cash flows, but they can also promise to pay out future cash flows by announcing a â€Å"permanent† increase in the dividend. 14 Because there is no contractual obligation to make the promised dividend payments, such promises are weak. Dividends can be reduced by managers in the future with little effective recourse available to shareholders. The fact that capital markets punish dividend cuts wit h large stock price reductions (Charest (1978); Aharony and Swary (1980)) can be interpreted as an equilibrium market response to the agency costs of free cash flow. Brickley, Coles and Soo Nam (1987) find that firms that regularly pay extra dividends appear to have positive free cash flow. In comparison with a control group they have significantlyRozeff (1982) and Easterbrook (1984b) argue that regular dividend payments can be effective in reducing agency costs with managers by assuring that managers are forced more frequently to subject themselves and their policies to the discipline of the capital markets when they acquire capital. 14 Interestingly, Graham and Dodd (1951, Chapters 32, 34 and 36) in their treatise, Security Analysis, place great importance on the dividend payout in their famous valuation formula: V=M(D+. 33E). (See p. 454. ) V is value, M is the earnings multiplier when the dividend payout rate is a â€Å"normal two-thirds of earnings,† D is the expected di vidend, and E is expected earnings.In their formula, dividends are valued at three times the rate of retained earnings, a proposition that has puzzled many students of modern finance (at least of my vintage). The agency cost of free cash flow that leads to over retention and waste of shareholder resources is consistent with the deep suspicion with which Graham and Dodd viewed the lack of payout. Their discussion (chapter 34) reflects a belief in the tenuous nature of the future benefits of such retention. Although they do not couch the issues in terms of the conflict between managers and shareholders, the free cash flow theory explicated here implies that their beliefs, sometimes characterized as a preference for â€Å"a bird in the hand is worth two in the bush,† were perhaps well founded. 13 M. C. Jensen 18 1987 igher cash plus short-term investments, and earnings plus depreciation, relative to their total assets. They also have significantly lower debt-to-equity ratios. Th e issuance of large amounts of debt to buy back stock sets up organizational incentives to motivate managers to pay out free cash flow. In addition, the exchange of debt for stock helps managers overcome the normal organizational resistance to retrenchment that the payout of free cash flow often requires. The threat of failure to make debt-service payments serves as a strong motivating force to make such organizations more efficient. Stock repurchase for debt or cash also has tax advantages.Interest payments are tax-deductible to the corporation, that part of the repurchase proceeds equal to the seller’s tax basis in the stock is not taxed at all, and prior to 1987 tax rates on capital gains were favorable. Increased leverage also has costs. As leverage increases, the usual agency costs of debt, including bankruptcy costs, rise. One source of these costs is the incentive to take on projects that reduce total firm value but benefit shareholders through a transfer of wealth fro m bondholders. These costs put a limit on the desirable level of debt. The optimal debt/equity ratio is the point at which firm value is maximized, the point where the marginal costs of debt just offset the marginal benefits. The debt created in a hostile takeover (or takeover defense) of a firm suffering severe agency costs of free cash flow need not be permanent.Indeed, sometimes â€Å"overleveraging† such a firm is desirable. In these situations, leveraging the firm so highly that it cannot continue to exist in its old form yields benefits by providing motivation for cuts in expansion programs and the sale of divisions that are more valuable outside the firm. The proceeds are used to reduce debt to a more normal or permanent level. This process results in a complete rethinking of the organization’s strategy and structure. When it is successful, a much leaner, more efficient, and competitive organization results. M. C. Jensen 19 1987 The control hypothesis does not i mply that debt issues will always have positive control effects.For example, these effects will not be as important for rapidly growing organizations with large and highly profitable investment projects but no free cash flow. Such organizations will have to go regularly to the financial markets to obtain capital. At these times the markets have an opportunity to evaluate the company, its management, and its proposed projects. Investment bankers and analysts play an important role in this monitoring, and the market’s assessment is made evident by the price investors pay for the financial claims. The control function of debt is more important in organizations that generate large cash flows but have low growth prospects, and it is even more important in organizations that must shrink.In these organizations the pressure to waste cash flows by investing them in uneconomic projects is most serious. Evidence from Financial Transactions Free cash flow theory helps explain previously puzzling results on the effects of various financial transactions. Smith (Smith, 1986, tables 1 to 3) summarizes more than 20 studies of stock price changes at announcements of transactions that change capital structure as well as various other dividend transactions. These results and those of others are presented in table 2. For firms with positive free cash flow, the theory predicts that stock prices will increase with unexpected increases in payouts to shareholders and decrease with unexpected decreases in payouts.It also predicts that unexpected increases in demand for funds from shareholders via new issues will cause stock prices to fall. The theory also predicts stock prices will increase with increasing tightness of the constraints binding the payout of future cash flow to shareholders and decrease with reductions in the tightness of these constraints. These predictions do not apply to those firms with more profitable projects than cash flow to fund them. M. C. Jensen 20 1987 The predictions of free cash flow theory are consistent with all but three of the 32 estimated abnormal stock price changes summarized in table 2, and one of the inconsistencies is explained by another phenomenon.Panel A of table 2 shows that stock prices rise by a statistically significant amount with announcements of the initiation of cash dividend payments, increases in dividends and specially designated dividends, and fall by a statistically significant amount with decreases in dividend payments. (All coefficients in table 2 are significantly different from zero unless noted with an asterisk. ) Panel B shows that security sales and retirements that raise cash or pay out cash and simultaneously provide offsetting changes in the constraints bonding the payout of future cash flow are all associated with returns that are insignificantly different from zero.The insignificant return on retirement of debt fits the theory because the payout of cash is offset by an equal reduction in th e present value of promised future cash payouts. If debt sales are not associated with changes in the expected investment program, the insignificant return on announcement of the sale of debt and preferred also fits the theory. The acquisition of new funds with debt or preferred stock is offset exactly by a commitment bonding the future payout of cash flows of equal present value. If the funds acquired through new debt or preferred issues are invested in projects with negative net present values, the abnormal stock price change will be negative. If they are invested in projects with positive net present values, the abnormal stock price change will be positive.Sales of convertible debt and preferred securities are associated with significantly negative stock price changes (panel C). These security sales raise cash and provide little effective bonding of future cash flow payments; when the stock into which the debt is convertible is worth more than the face value of the debt, manageme nt has incentives to call the convertible securities and force conversion to common. M. C. Jensen 21 1987 Panel D shows that, with one exception, security retirements that pay out cash to shareholders increase stock prices. The price decline associated with targeted large block repurchases (often called greenmail) is highly likely to be due to the reduced probability that a takeover premium will be realized.These transactions are often associated with standstill agreements in which the seller of the stock agrees to refrain from acquiring more stock and from making a takeover offer for some period into the future (Mikkelson and Ruback (1985; 1986); Dann and DeAngelo (1983); and Bradley and Wakeman (1983);). Panel E summarizes the effects of security sales and retirements that raise cash and do not bond future cash flow payments. Consistent with the theory negative abnormal returns are associated with all such changes, although the negative returns associated with the sale of common t hrough a conversion-forcing call are statistically insignificant.Panel F shows that all exchange offers or designated use security sales that increase the bonding of payout of future cash flows result in significantly positive increases in common stock prices. These include stock repurchases and exchange of debt or preferred for common, debt for preferred, and income bonds for preferred. The twoday gains range from 21. 9 percent (debt for common) to 1. 6 percent for income bonds and 3. 5 percent for preferred. 15 The theory predicts that transactions with no cash flow and no change in the bonding of payout of future cash flows will be associated with returns that are insignificantly different from zero. Panel G of table 2 shows that the evidence is mixed; 15 The two-day returns of exchange offers and self-tenders can be affected by the offer.However, if there are no real effects or tax effects, and if all shares are tendered to a premium offer, then the stock price will be unaffecte d by the offer and its price effects are equivalent to those of a cash dividend. Thus, when tax effects are zero and all shares are tendered, the two-day returns are appropriate measures of the real effects of the exchange. In other cases the correct returns to be used in these transactions are those covering the period from the day prior to the offer announcement to the day after the close of the offer (taking account of the cash payout). See, for example, Rosenfeld (1982), whose results for the entire period are also consistent with the theory. M. C. Jensen 22 1987 he returns associated with exchange offers of debt for debt are significantly positive and those for designated-use security sales are insignificantly different from zero. All exchanges and designated-use security sales that have no cash effects but reduce the bonding of payout of future cash flows result, on average, in significant decreases in stock prices. These transactions include the exchange of common for debt or preferred or preferred for debt, or the replacement of debt with convertible debt and are summarized in Panel H. The two-day losses range from 7. 7 percent (preferred for debt) to 1. 1 percent (common for debt). In summary, the results in table 2 are remarkably consistent with free cash flow theory hich predicts that, except for firms with profitable unfunded investment projects, stock prices will rise with unexpected increases in payouts to shareholders (or promises to do so) and will fall with reductions in payments or new requests for funds from shareholders (or reductions in promises to make future payments). Moreover, the size of the value changes seems to be positively related to the change in the tightness of the commitment bonding the payment of future cash flows. For example, the effects of debtfor-preferred exchanges are smaller than the effects of debt-for-common exchanges. Tax effects can explain some of the results summarized in table 2, but not all.For example, the ex change of preferred for common, or replacement of debt with convertible debt, has no tax effects and yet is associated with price increases. The last column of table 2 denotes whether the individual coefficients are explainable by pure corporate tax effects. The tax theory hypothesizes that all unexpected changes in capital structure that decrease corporate taxes increase stock prices and vice versa. 16 Therefore, increases in dividends and reductions of debt interest should cause stock prices to fall, and vice versa. 17 Fourteen of the 32 coefficients are inconsistent with the corporate tax See, however, Miller (1977) who argues that allowing for personal tax effects and the equilibrium response of firms implies that no tax effects will be observed. 7 Ignoring potential tax effects due to the 85 percent exclusion of dividends received by corporations on holdings of preferred stock. 16 M. C. Jensen 23 1987 Table 23 Summary of Two-Day Average Abnormal Stock Returns Associated with th e Announcement of Various Dividend and Capital Structure Transactionsa Average Sample Size Average Abnormal Return (Percent) Free Cash Flow Theory Agreement with Tax Predicted Agreement Theory Sign with Theory? Type of Transaction A. Dividend changes that change the cash paid to shareholders Dividend initiation1 Dividend increase2 Specially designated dividend Dividend decrease2 3 Security Issued Security Retired 160 281 164 48 3. 7% 1. 0 2. 1 -3. 6 + + + – es yes yes yes no no no no B. Security sales (that raise cash) and retirements (that pay out cash) that simultaneously provide offsetting changes in the constraints bonding future payment of cash flows Security sale (industrial) 4 Security sale (utility) 5 Security sale (industrial) 6 Security sale (utility) Call8 7 debt debt preferred preferred none none none none none debt none none none common common common common 248 140 28 251 133 74 54 9 147 182 15 68 – 0. 2* -0. 1* -0. 1* -0. 1* -0. 1* -2. 1 -1. 4 -1. 6 15. 2 3. 3 1. 1 -4. 8 0 0 0 0 0 – – – + + + + yes yes yes yes yes yes yes yes yes yes yes no b no no yes yes no no no no yes yes yes no b C.Security sales that raise cash and bond future cash flow payments only minimally Security sale (industrial) 4 conv. debt 7 Security sale (industrial) conv. preferred 7 Security sale (utility) conv. preferred D. Security retirements that pay out cash to shareholders Self tender offer 9 Open market purchase10 Targeted small holdings11 Targeted large block repurchase12 none none none none M. C. Jensen 24 1987 E. Security sales or calls that raise cash and do not bond future cash flow payments Security sale (industrial) 13 common none Security sale (utility)14 common none Conversion-forcing call15 common conv. preferred Conversion-forcing call15 common conv. debt F.Exchange offers, or designated use security sales that increase the bonding of payout of future cash debt common Designated use security sale16 Exchange offer 17 debt comm on 17 Exchange offer preferred common 17 Exchange offer debt preferred Exchange offer 18 income bonds preferred G. Transaction with no change in bonding payout of future cash flows Exchange offer 19 debt 20 Designated use security sale debt debt debt 215 405 57 113 flows 45 52 10 24 18 36 96 -3. 0 -0. 6 -0. 4* -2. 1 21. 9 14. 0 8. 3 3. 5 1. 6 0. 6 0. 2* -2. 4 -2. 6 -7. 7 -4. 2 -1. 1 – – – – + + + + + 0 0 – – – – – yes yes no yes yes yes yes yes yes no yes yes yes yes yes yes yes yes yes yes yes yes no yes yes no yes yes no yes yes yes H.Exchange offers, or designated use security sales that decrease the bonding of payout of future cash flows Security sale 20 conv. debt debt 15 Exchange offer 17 common preferred 23 17 Exchange offer preferred debt 9 20 Security sale common debt 12 Exchange offer 21 common debt 81 a Returns are weighted averages, by sample size, of the returns reported by the respective studies All returns are significantly different from zero unless noted otherwise by *. b Explained by the fact that these transactions are frequently associated with the termination of an actual or expected control bid. The price decline appears to reflect the loss of an expected control premium. Source: 1 Asquith and Mullins (1983). 2 Charest (1978); Aharony and Swary (1980). 3 From Brickley (1983). Dann and Mikkelson (1984); Eckbo (1986); Mikkelson and Partch (1986). 5 Eckbo (1986). 6 Linn and Pinegar (1985); Mikkelson and Partch (1986). 7 Linn and Pinegar (1985). 8 Vu (1986). 9 Dann (1981); Masulis (1980); Vermaelen (1981); Rosenfeld (1982). 10 Dann (1980); Vermaelen (1981). 11 Bradley and Wakeman (1983). 12 Calculated by Smith (1986), table 4, from Dann and DeAngelo (1983); Bradley and Wakeman (1983). 13 Asquith and Mullins (1986); Kolodny and Suhler (1985); Masulis and Korwar (Korwar and Masulis); Mikkelson and Partch (1986). 14 Asquith and Mullins (1986); Masulis and Korwar (1986); Pettway and R adcliffe (1985). 15 Mikkelson (1981). 16 Others with more than 50% debt Masulis (1980). 17 Masulis (1983).These returns include announcement days of both the original offer and, for about 40 percent of the sample, a second announcement of specific terms of the exchange 18 McConnell and Schlarbaum (1981). 19 Dietrich (1984). 20Eckbo (1986); Mikkelson and Partch (1986). 21Rogers and Owers (1985); Peavy and Scott (1985); Finnerty (1985). (Allen, 1987; Auerbach and Reishus, 1987; Biddle and Lindahl, 1982; Bradley, Desai, and Kim, 1983; Bradley and Rosensweig, 1986; Comment and Jarrell, 1986; 1986; Crovitz, 1985; Easterbrook, 1984a; Eckbo, 1985; 1985; Fama and Jensen, 1983a, b, 1985; Franks, Harris, and Mayer, 1987; Golbe and White, 1987; Herzel, Colling, and Carlson, 1986; Holderness and Sheehan, 1985; 1985; Jarrell, Poulsen, and Davidson, 1985; Jensen, 1985, 1986b; Jensen and Smith, 985; Kaplan and Roll, 1972; Koleman, 1985; Lambert and Larcker, 1985; Malatesta and Walkling, 1985; Mart in, 1985; Morrison, 1982; Mueller, 1980; Myers, 1977; Office of the Chief Economist, 1984, 1985b, 1986; Paulis, 1986; Ravenscraft and Scherer, 1985a, b; Ricks, 1982; Ricks and Biddle, 1987; Ruback, 1988; Ryngaert, 1988; Shoven and Simon, 1987; Sunder, 1975; You et al. ) Jensen 25 1987 hypothesis. Simple signaling effects, where the payout of cash signals the lack of present and future investments promising returns in excess of the cost of capital, are also inconsistent with the results-for example, the positive stock price changes associated with dividend increases and stock repurchases. If anything, the results in table 2 seem too good, for two reasons.The returns summarized in the table do not distinguish firms that have free cash flow from those that do not have free cash flow, yet the theory says the returns to firms with no free cash flow will behave differently from those which do. In addition, only unexpected changes in cash payout or the tightness of the commitments bonding the payout of future free cash flow should affect stock prices. The studies summarized in table 2 do not, in general, control for the presence or absence of free cash flow or for the effects of expectations. If free cash flow effects are large and if firms on average are in a positive free cash flow position, the predictions of the theory will hold for the simple sample averages. To see how the agency costs of free cash flow can be large enough to show up in the uncontrolled tests summarized in table 2, consider the graph of equilibrium firm M.C. Jensen 26 1987 value and free cash flow in figure 1. Figure 1 portrays a firm whose manager values both firm value (perhaps because stock options are part of the compensation package) and free cash flow. The manager, however, is willing to trade them off according to the given indifference curves. By definition, firm value reaches a maximum at zero free cash flow. The point (V*, F*) represents the equilibrium level of firm value and free ca sh flow for the manager. It occurs at a positive level of free cash flow and at a point where firm value is lower than the maximum possible. The difference Vmax – V* is the agency cost of free cash flow.Because of random factors and adjustment costs, firms will deviate temporarily from the optimal F*. The dashed line in figure 1 portrays a hypothetical rectangular distribution of free cash flow in a cross section of firms under the assumption that the typical firm is run by managers with preferences similar to those portrayed by the given indifference curves. Changes in free cash flow (or the tightness of constraints binding its payout) will be positively related to the value of the firm only for the minority of firms in the cross section with negative free cash flow. These are the firms lying to the left of the origin, 0. The relation is negative for all firms in the range with positive free cash flow.Given the hypothetical rectangular distribution of firms in figure 1, the majority of firms will display a negative relation between changes in free cash flow and changes in firm value. As a result the average price change associated with movements toward (V*, F*) will be negatively related to changes in free cash flow. If the effects are so pervasive that they show up strongly in the crude tests of table 2, the waste due to agency problems in the corporate sector is probably greater than most scholars have thought. This waste is one factor contributing to the high level of activity in the corporate control market over the past decade. More detailed tests of the propositions that control for growth prospects and expectations will be interesting. M. C. Jensen 27 1987Evidence from Going-Private and Leveraged Buyout Transactions Many of the benefits in going-private and leveraged buyout transactions seem to be due to the control function of debt. These transactions are creating a new organizational form that competes successfully with the open corporate form because of advantages in controlling the agency costs of free cash flow. In 1985, going-private and leveraged buyout transactions totaled $37. 4 billion and represented 32 percent of the value of all public acquisitions. 18 Most studies have shown that premiums paid for publicly held firms average over 50 percent,19 but in 1985 the premiums for publicly held firms were 31 percent (Grimm, 1985). Leveraged buyouts are frequently financed with high debt; 10:1 ratios of debt to equity are not uncommon, and they average 5. 5:1 (Schipper and Smith (1986); Kaplan (1987); and DeAngelo and DeAngelo (1986)). Moreover, the use of â€Å"strip financing† and the allocation of equity in the deals reveal a sensitivity to incentives, conflicts of interest, and bankruptcy costs. Strip financing, the practice in which investors hold risky nonequity securities in approximately equal proportions, limits the conflict of interest among such securityholders and therefore limits bankruptcy costs. T op managers and the sponsoring venture capitalists hold disproportionate amounts of equity. A somewhat oversimplified example illustrates the organizational effects of strip financing. Consider two firms identical in every respect except financing.Firm A is entirely financed with equity, and Firm B is highly leveraged with senior subordinated debt, convertible debt, and preferred as well as equity. Suppose Firm B securities are sold only in strips; that is, a buyer purchasing a certain percentage of any security must purchase the same percentage of all securities, and the securities are â€Å"stapled† together See W. T. Grimm, Mergerstat Review (1985, Figs. 29, 34 and 38). See DeAngelo, DeAngelo and Rice (1984), Lowenstein (1985), and Schipper and Smith (1986). Lowenstein also mentions incentive effects of debt but argues tax effects play a major role in explaining the value increase. 19 18 M. C. Jensen 28 1987 o they cannot be separated later. Security holders of both firms have identical unlevered claims on the cash flow distribution, but organizationally the two firms are very different. If Firm A managers withhold dividends to invest in value-reducing projects or if they are incompetent, the shareholders must use the clumsy proxy process to change management or policies. In Firm B, strip holders have recourse to remedial powers not available to the equity holders of Firm A. Each Firm B security specifies the rights its holder has in the event of default on its dividend or coupon payment; for example, the right to take the firm into bankruptcy or to have board representation.As each security above equity goes into default, the strip holder receives new rights to intercede in the organization. As a result, it is quicker and less expensive to replace managers in Firm B. Moreover, because every security holder in the highly leveraged Firm B has the same claim on the firm, there are no conflicts between senior and junior claimants over reorganization of the claims in the event of default; to the strip holder it is a matter of moving funds from one pocket to another. Thus, Firm B will not go into bankruptcy; a required reorganization can be accomplished voluntarily, quickly, and with less expense and disruption than through bankruptcy proceedings. The extreme form of strip financing in the example is not normal practice.Securities commonly subject to strip practices are often called â€Å"mezzanine† financing and include securities with priority superior to common stock yet subordinate to senior debt. This arrangement seems to be sensible, because several factors ignored in our simplified example imply that strictly proportional holdings of all securities is not desirable. For example, IRS restrictions deny tax deductibility of debt interest in such situations and bank holdings of equity are restricted by regulation. Riskless senior debt need not be in the strip because there are no conflicts with other claimants in the event of reorganization when there is no probability of default on its payments. M. C. Jensen 29 1987Furthermore, it is advantageous to have the top-level managers and venture capitalists who promote leveraged buyout and going-private transactions hold a larger share of the equity. Top-level managers on average receive over 30 percent of the equity, and venture capitalists and the funds they represent generally retain the major share of the remainder (Schipper and Smith (1986); Kaplan (1987)). The venture capitalists control the board of directors and monitor the managers. Both managers and venture capitalists have a strong interest in making the venture successful because their equity interests are subordinate to other claims. Success requires (among other things) implementation of changes to avoid investment in low-return projects in order to generate the cash for debt service and to increase the value of equity.Finally, when the equity is held by a small number of people, efficiencies in risk-bearing can be achieved by placing more of the risk in

J.S. Bach’s Brandenburg Concerto No. 2, 2nd Movement Essay

The second movement of J. S. Bach’s Brandenburg Concerto No. 2 in F major, BWV 1047 consists of sixty-five measures that take approximately four minutes to perform and is scored for solo flute (recorder), solo oboe, solo violin, cello, and harpsichord. The three high-pitched solo instruments generally use the middle and upper part of their registers. For example, the lowest pitch for the violin is the D just above middle C. This stratification, combined with certain melodic and rhythmic features, clearly differentiates the melodic and accompanimental voices. Melody The three solo instruments are the primary vehicles for the melodic material in this movement. The melodic line is very short (only two measures long) and is clearly stated for the first time by the violin in mm. 1-3. This melody contains several distinguishing features. It begins with an ascending step and then proceeds to descend by step. This descent is slightly interrupted by an ornament on beat 3 of m. 2. For instance, on beat 3 of m. 2, the primary note is G. This G forms part of the descent from Bb (beat 1), A (the second half of beat 2), continuing to F (beat 1 of m. 3), E (beat 2), and D (the second half of beat 2). The G is ornamented by the Bb and A that also form part of beat 3 of m. 2. The principle melody also features a trill on beat 1 of m. 3 and an accented passing tone on beat 2 of m. 3. Rhythmic characteristics of this melody include beginning with a quarter note anacrusis followed by a dotted quarter. The agogic accent on the highest note of the melody gives a stress to the first beat of each even-numbered bar. Though the rhythmic values of the continuation of the melody vary throughout the movement, the durations of the first two notes are constant. After its first appearance, this melody is then imitated by the oboe (m. 3) and the flute (m. 5), at the original pitch. Once all the voices have stated this melody, the melody continues to be used imitatively throughout the movement, with the exception of two passages, mm. 34-37 and mm. 46-57. In these two passages, the melodic material consists largely of step-wise motion that creates suspensions on beat 1 of every bar. This material is derived from the accompanimental material of the opening melody. When the violin has finished stating the primary melody and the oboe enters with this melody at the end of m. 3, the violin continues with material that is largely step-wise in motion and creates suspensions on beat 1 of every bar. The suspensions come in a variety of forms: 6-5 (m. 4), 2-1 (m. 6), and 7-8 (m. 7). While the solo instruments are charged with the melodic material, the cello and harpsichord play an accompanimental role. These voices play almost consistent eighth notes. The eighth-note motion is disrupted only five times throughout the movement. In mm. 14, 22, 32, and 42 the quarter notes on beat two and three slow down the surface rhythm and give a sense of expectation of closure. In fact, all of these measures feature dominant, or dominant-seventh, sonorities and are followed by a tonic harmony in the next bar. The eighth-note motion is also absent from the accompanimental voices in the last four measures of the piece. Harmony With the melody and the prevailing rhythmic motion of the movement being largely constant, it is left to the harmony to provide contrast. This movement is in d minor, but many other keys are touched upon. A minor is the first contrasting key to appear. The dominant of a minor is introduced quite early in the piece in m. 8, but a strong arrival on A is delayed until m. 15. In the intervening measures, Bach introduces a harmonic idea that will be used later in the piece. The harmony of m. 10 consists of the V7 chord of C major; however, this dominant resolves deceptively to a minor in m. 11. C major appears as a key area in. mm. 17-24. The modulation to C major is accomplished through the use of a pivot chord: the F major sonority on beat 1 of m. 17 functions as both the VI of a minor and the IV of C major. The cadence in C major in m. 23 is one of the strongest cadences in the entire movement. All voices sound an unembellished C major triad on beat one. Furthermore, beat 2 of this measure is the only time in the movement (aside from the first measure) where all melodic voices are silent. G minor is briefly tonicized in m 25. This key area is approached through a combination of a deceptive resolution and a pivot chord. In m. 24, a G dominant seventh chord appears. It does not resolve to C as expected, but rather deceptively to a minor. This a minor sonority functions simultaneously as vi of a minor and ii of g minor. This g minor section is very brief, as the progression V7-vi(ii) is sequenced in the following measure to tonicize d minor. With this tonicization of d minor comes a return of the opening melody at its original pitch (oboe, m. 27). The d minor triad of m. 29 functions as a pivot chord in the modulation to Bb major. There is a strong cadence in Bb major in m. 33, and the piece remains in this key until m. 39. This is in fact the largest period of harmonic stability that the listener has encountered so far. It is striking therefore that this is precisely the section where the primary melodic idea disappears for the first time. Whereas in the first 33 measures of the piece, the melody remained constant and the harmonic varied, in mm. 33-39, the harmony is stable and the melody is contrasting. G minor, which had previously been briefly tonicized, returns as a key area in m. 39. Bach hints at its return in m. 37 with the D major sonority (the dominant of G). In m. 39, the V7 sonority of Bb major is resolved deceptively to g minor, and this vi functions as a pivot chord (i of g minor). A strong cadence in g minor appears in m. 43. However, the movement does not remain in g minor for long, as this tonic triad is actually a pivot chord marking the return of d minor (i re-interpreted as iv). The remainder of the movement is in d minor, though a circle of fifths progression provides some contrasting harmonic motion. This circle of fifths progression is preceded by the two strong dominant-tonic motions in d minor of mm. 45-48. From here, Bach cycles through A major (m. 49), D major (m. 50), G major (m. 51), C major (m. 52), F major (m. 53), and Bb major (m. 54). The cycle is broken by the E diminished sonority of m. 55 (ii? of d minor) which functions as a pre-dominant, leading to the dominant of m. 56 and finally to the tonic in m. 57. Form and Phrase Structure While this movement does not follow a recognizable form such as ritornello or binary, it can be divided into smaller formal units when the harmonic motion is considered alongside features of the melody and the texture. As noted above, the accompanimental voices in mm. 14, 22, 32, and 42 contain quarter notes that contrast with the almost pervasive eighth note motion of these voices and thus stand out upon hearing. These measures also announce the arrival of significant key areas: a minor (m. 15), C major (m. 23), Bb major (m. 33), and g minor (m. 43). These measures mark significant structural moments in the movement. The sections delineated by these points of arrival can be further broken down into smaller formal units based on melodic and harmonic features. As noted above, the primary melody is two bars long, and each imitative entry follows directly once the previous voice has finished stating the melody. The entries of the voices are very easily heard as the texture throughout the piece is quite thin. These two bar units are combined into larger phrases. The section from mm. 1-15 can be divided into two phrases, mm. 1-7 and mm. 7-15, based on the cadence in d minor in m. 7. The first phrase consists of the presentation of the melody in each of the three solo voices. The second phrase, likewise, contains a presentation of the melody in all three voices, but this phrase is two bars longer than the first because of an additional entry in the flute (m. 13) and the modulation to a minor. The section from mm. 15-23 is one phrase. As with the first phrase of the movement, each solo instrument presents the melody at the same pitch level (this time starting on C). However, this phrase is two bars longer than the opening phrase because of the cadential material in mm. 22-23. The section from mm. 23-33 is divided into two units, mm. 23-27 and mm. 27-33. The first phrase contains the presentation of the melody in the violin, which is then sequenced up a fifth in the flute in m. 25. Measure 27, with the tonicization of d minor and the return of the opening melody at its original pitch, sounds like the beginning of a new phrase. Measures 33- 43 can likewise be divided into two phrases, mm. 33-37 and mm. 37-43. Measures 33-37 are distinguished by the absence of the original melody and the relative stability of Bb major as a key area. The primary melody returns in m. 37, and the phrase that begins in this measure contains a statement of the melody by all three solo instruments. The final section of the piece, mm. 43-65, can be heard as being divided into four sections: mm. 43-45, mm. 45-57, mm. 57-62, and mm. 62-65. The first of these sections is very brief and contains a single statement of the melody in the oboe. The second section, quite long, contains the circle of fifths progression with no statement of the primary melody. The third section contains a statement of the melody in the violin and the oboe. The flute begins its entrance, but the melody is truncated. In the final section, the eighth note motion of the continuo voices is gone, as is the primary melody. These measures consist entirely of cadential material. This material is noteworthy because of its chromaticism and its rhythmic treatment. At first, the cadence seems to be approached in a predictable manner. The tonic six-four chord of m. 62 is followed by a dominant seventh in root position at the end of this bar. Theoretically, a tonic triad could follow at the beginning of m. 63 to bring the movement to a close. However, Bach prolongs the dominant functioning harmony with a fully diminished seventh chord (in third inversion). This chord does not resolve as expected. One would expect the Bb in the bass to descend to an A, however it rises chromatically to a B natural. This B natural forms part of another fully diminished seventh chord (borrowed from the key of the dominant) and is in first inversion. This seventh chord finally leads to the dominant to prepare for the final appearance of the tonic (albeit with a piccardy third). The effect of this surprising harmonic motion is highlighted by the hemiola, as each of these sonorities gets a full two beats. One remarkable feature of all of the phrases in this movement is how they overlap with the preceding phrases. Several features combine to produce this characteristic. First, the accompanying voices begin on beat one of the first measure. The melodic entries, however, always begin on beat three. From the beginning then, there is a two-beat separation of the phrase structure of the melodic and accompanying voices. This separation is highlighted at cadences. In this movement, the resolution harmony always appears on beat 1 in the accompaniment. However, at this point, the melodic voices are still in the process of completing their descending line, which is only accomplished at the end of beat two. Furthermore, the point of arrival in the cadences serves not only as the end of one harmonic progression but also as the beginning of another progression. As all of the phrases are elided, this movement contains no significant moments of rest and stability. One never gets the sense that one idea has completely ended before something else begins. Conclusion In addition to the elision of phrases, other musical elements contribute to the sense that musical ideas never completely finish. For one, the wave-like quality produced by the entrance of the imitative voices is quite hypnotic and could, in theory, be continued indefinitely. Also, the harmonic motion is not goal-oriented. Bach does not set up the expectation for one significant contrasting key area to be explored in the movement. Rather, many different key areas are touched upon, but none (with the possible exception of the Bb area) are featured for a significant amount of time. Furthermore, the one key area which one expects to hear, namely F major (the relative major of d minor), is completely absent from this movement. Because this movement is not goal-oriented, the listener gets the sensation that it continues to open out. Indeed, it is not until the circle of fifths progression begins in m. 49 that the listener gets the sense that the end of the movement is approaching. The arrival at this turning point is quite unexpected and takes the listener by surprise. To speak colloquially, it is as if someone got in their car and started driving, with no destination in mind. Since there was no reason for the trip, the driver did not know when to turn around and come back home. Nevertheless, the driver finds himself on a familiar road near his house, and because he is almost there decides to just go home.

The sports broadcasting industry analysis Research Paper

The sports broadcasting industry analysis - Research Paper Example For example, football broadcasting accounts for the largest share of revenue in European countries. Highly ranked channels are advantageous over local channels that depend on free provisions to air programs. The channels have a limit for airing programs, a process that influences the overall revenue for a broadcasting company (Humphreys & Dennis 4). Giving a company absolute rights to broadcast events leads to escalations in revenue. Broadcasters who transmit live programs earn much revenue as opposed to persons transmitting recorded programs (Vogel 3). Recorded programs act as backup for revenue especially when live transmission occurs during odd hours. The right to transmit programs live is determined by the contract issued by a broadcasting company. Broadcasting directs has several advantages over broadcasting via cable. Affiliate fees create monopoly in advertising because it gives cable channels the autonomy to increase revenues by charging their affiliates highly. Moreover, they deny other channels the opportunity to increase their customer base by monopolizing sports

Research #2 Essay Example | Topics and Well Written Essays - 2000 words

Research #2 - Essay Example This trend is relatively new and not all operating systems have completely embraced it totally, however this is slowly creeping into the field of medical science enabling more benefits for patient care. With introduction of the concept of online applications that are patented by the given operating systems, large number of Health care associated applications are available in the online market which entail the different domains of health care, such as diagnosis of numerous diseases, serving as a guide and manual, remedial actions suggestion, medical dictionaries, medicine names, nearby pharmacies and numerous other sources that facilitate the health care sector in a positive way. Certain pre requisites apply to the usage of health care applications on the medium of mobile phone. These entail the regulatory body instructions, the clients awareness level, establishing of policies for its promotion, the market promotion policies, their availability factor, language use factor and various other factors that must be taken into account while handling health care applications and promoting them. 6. Overview of the F.D.A role in terms of the present day rules in place and the future considerations, with mobile phones becoming part of nearly every individual’s life, regulations are needed to be brought into action. Numerous operating systems have launched applications for use in the health care. Apple Inc. is one of the leaders in this field. It launched this service couple of years ago. IMedicalApps is one sush endeavor undertaken by Apple Inc. and it has a number of applications under its belt that facilitate better health care knowledge and awareness. The Android Operating system is not far behind and it has introduced numerous applications for the same purpose. Apart from the mobile application provides, other PSTN enabled networks are also aiming to catch up fast on the applications. Verizon is one of them that has joined the bandwagon in recent times

Environmental health impact assessment.(2) Essay

Environmental health impact assessment.(2) - Essay Example 2009, cited in Harris and Spickett 2010, 1) The development of EIA’s methodologies and procedures originated in North America, later in Europe, mainly by ecologists whose concern in assessing the impacts of development activities focused more on human health. Similar efforts were then made for the development of health impact assessment methodologies and procedures, but this had not been as smooth as EIA’s. The (1) ‘lack of epidemiological knowledge regarding dose-response relationships’ and the (2) ill-preparedness of concerned government authorities to release documents showing in concrete figures the impact of development on the incidences of death and diseases made the latter job difficult. The first problem made it difficult to determine the effect of environmental changes on health, for example, the release of pollutants; whereas, the second problem denied hard evidences on the adverse health impacts of development. (Giroult1990, 259) Resultantly, the health components have become the main lim itations of many EIA studies. A WHO commissioned study of 15 EIAs testified to this saying: â€Å"... off-site health effects generally have been given a low priority and have not been treated systematically† (cited in Giroult1990, 259). To ensure that health will be consciously considered in EIAs against these difficulties, a new approach, namely Environmental Health Impact Assessment (EHIA) was proposed. (Giroult1990, 259) To understand this new approach, the key term – environmental health – that differentiates it from the current approach has to be defined. From Listorti and Doumani’s (2001) noted environmental health’s definition, it essentially means, as that which prevents health hazards, namely ‘increasing human diseases, injury, and premature death’, while pursuing development activities (349). Main health hazards are classified as:

William James, The Will to Believe Essay Example | Topics and Well Written Essays - 1500 words

William James, The Will to Believe - Essay Example Only a genuine option is relevant. James creates a three-part test for determining whether an option is, in fact, genuine. This three-part test requires that an option be living, forced, and momentous in order to be genuine. As an initial matter, there must be two alternatives. To be genuine, the option must be living. This means that the individual in question will consider seriously each of the alternatives. It must be possible that he will choose either of the options. In this respect, the genuine option becomes extraordinarily individualistic. The test is not applied to groups, whether large or small, but to the smallest possible unit. The test is applied to the decision-maker. This has significant implications. An option may be living for one person but not for another. In a very basic way, the person must be thoughtful, open-minded, and undecided for the option to be living. Assuming that the option is living, the second part of the test requires that an option must be forced. The forced element demands that an alternative be chosen. There can be no hedging. There can be no qualifications of the choice. There is a sense of completeness and irrevocability demanded by this element of the genuine option. You have faith or you do not have faith. You like a person or you do not like a person. There is, in short, a conflict and it must be resolved. The final part of the test concerns the uniqueness of the option. James refers to this as the momentous option. In his view, this option presents itself as a once-in-a lifetime opportunity. To be momentous, the option must transcend trivial issues. The option must involve truly significant matters, the decision must be irrevocable, and the decision must be unique. This limits the discussion to very fundamental issues, such as deeply moral questions, religious questions, and personal relations. In the final analysis, James argues that the question of religious faith is a genuine option because the question satisfies the three-part test. When confronted with the question of religious faith, the option may very well be living to many individuals. The individual may consider both alternatives, to have faith or not to have faith, very seriously. Faith is forced in the sense that, after considering the question, a choice must be made. You do not have faith in salvation without a corresponding faith in hell. Finally, this question of religious faith is a momentous decision. The notion of God is hardly trivial. The notions of salvation and eternal damnation are quite significant. How an individual defines his existence, and leads his life, can be fundamentally affected by this decision. Is this type of religious faith then a rational faith James believes that religious faith, as qualified by the genuine option approach, is rational. Again, his framework relies heavily on the concept of circumstance and individuality. The need for absolute evidence is tangential. This rationale is justified by reference to what he calls our passional nature. Our passions motivate us to act. They are not objective. They are specific to each individual. We are all possessed of

The Dhammapada Essay Example | Topics and Well Written Essays - 500 words

The Dhammapada - Essay Example He was born in the sixth century of a ruling family in the Himalayan foothills and named Siddhartha. He was brought up in royalty where he was trained to become an heir of the kingdom after his father. These trainings brought a lot of suffering to his life resulting to his escape from pleasures and royal privileges. Siddhartha was not pleased with the continued practice to become a ruler. For this reason, he escaped his royal home spending many days in the forest. His escape was based on a mission to find different ways of acquiring deliverance from all suffering (Batchelor, 21). The Buddha had three main aims in his teachings, which included current human affairs and their welfare, favorable rebirth in the subsequent life, and attainment of ultimate high quality. The last one is divided into two parts, which include establishing happiness and morality does not exhaust its significance in human felicity. These aims show different ways in which man can leave in peace with himself and his fellow men. According to the Buddha teachings, the mind plays an important role in the enhancement of wisdom in the mind. If the mind is not steadfast, wisdom never becomes perfect for all those who are not I favor of good teaching and strong faith. Dhamma offers directions elucidating the factual character of way of life and showing the path that leads to liberation (Palihawadana, 44). The Buddha used different methods and instructions to illustrate different ways to pain freedom. Kamma is a volitional action springing from intention and may manifest itself as speech, deeds, thoughts, desires, and emotions. It helped the people in memorizing the teachings by the Buddha. This is because the willed proceedings a human being performs in the path of his existence may perhaps become forgotten, but once performed they leave memories in the mind. These memories are seeds that are capable of fruition in the future on receiving conditions of ripening. This is in relation with the

Energy from Sunlight Essay Example | Topics and Well Written Essays - 750 words

Energy from Sunlight - Essay Example Countries which receive a lot of sunlight in a year are in an advantageous position than the countries in the far north who do not receive sufficient sunlight. The term used for the incoming solar radiation striking a surface at a particular time is insolation. According to Solar Energy International, on a clear day, the total insolation striking the earth is around 1000 watts per square meter. (Solar Energy International) One of the ways to make use of solar energy is to use photovoltaic cells. The PV modules using arrays of PV cells is used to power a house. ". The PV modules should point towards the true south in the northern hemisphere. They should be inclined at an angle equal to the latitude of the place., so that they absorb the maximum energy throughout the year".(Hestnes, 27) According to TERI, an organization working for environmental concerns in India," :Solar energy can also be used to meet our electricity requirements. Through Solar Photovoltaic (SVP) cells, solar radiation gets converted into DC electricity directly. This electricity can either be used as it is or can be stored in the battery. This stored electrical energy then can be used at night."(TERI) The uses of the stored electricity generated using solar energy are many. Since it is stored, it can be used at night too. According to TERI, the stored solar energy can be used for "a.) domestic lighting. ,b.)street lighting, c)village electrification, d)water pumping, e)desalination of salty water, f) powering of remote telecommunications repeat stations and g)railway signals." (TERI) If energy is to be stored, then batteries would have to be used. Since the life of batteries are much shorter than the PV modules, it is better to... According to TERI, an organization working for environmental concerns in India,† :Solar energy can also be used to meet our electricity requirements. Through Solar Photovoltaic (SVP) cells, solar radiation gets converted into DC electricity directly. This electricity can either be used as it is or can be stored in the battery. This stored electrical energy then can be used at night.†(TERI)  The uses of the stored electricity generated using solar energy are many. Since it is stored, it can be used at night too. According to TERI, the stored solar energy can be used for â€Å"a.) domestic lighting. ,b.)street lighting, c)village electrification, d)water pumping, e)desalination of salty water, f) powering of remote telecommunications repeat stations and g)railway signals.† (TERI)  If energy is to be stored, then batteries would have to be used. Since the life of batteries are much shorter than the PV modules, it is better to get connected to a grid. Power can be sold   when it is in   excess and bought from the grid when   extra energy is needed .It must be remembered that   the selling rate is always less than the buying rate. Wherever batteries are used, they must be maintained.   Many countries have started using solar energy to augment their energy needs. According to a report in The Chronicle Herald of November 29, 2008, a town is Spain is making use of the space available in the cemetery to set up solar panels , because flat , open sun-drenched land is hard t come by in Santa Coloma de Gramenet.  

Choose one from the instruction Research Paper Example | Topics and Well Written Essays - 2250 words

Choose one from the instruction - Research Paper Example The two cases constitute to intentional or negligence cases. There are other cases where the person causing damage remains liable to the victim regardless of whether they intended to cause harm. These constitute to strict liability cases. A country’s court has many cases to handle ranging from criminal cases to civil cases, among many others. Among the many cases the court handles are tort cases. The court seeks to administer justice to those involved through compensation as well as they look for ways of deterring further occurrence of torts (Best and David 8). Sometimes, compensation for losses incurred becomes the core function of tort law, and contributes to its development. Although the primary function of tort law can be described as the need to determine the required compensation. However, prevention and punishment measures too are important factors that help prevent further tort cases. This is because as the court looks for compensation of the injured, it also looks to send a warning to the offender. When a court makes its decisions on the case and defendants understand they may have liability in the case, it may act as a deterrent measure on further tort cases. However, research shows that goals of compensation and deterrence of future damage may differ in some cases as the court may favor one side than the other (Best and David 8). When courts in the U.S started undertaking tort cases, they considered compensation and deterrence as the main goals of concern. However, compensation became easier to perceive than deterrence and courts expanded tort law focusing on compensation. Later, economic hardships that hit the country largely affected the court's decision to follow compensation (Best and David 9). Impact of legal issues on economy Economic analysis of... The social cost incurred from the accident is the cumulative precaution and the cost of the expected accident, and becomes what the society is liable for. Economically, for the society to reduce the costs of an accident they should take a precaution that lies in between two extremes; the cost of the precaution itself and the cost of the expected accident (Mattiacci 5).The in-between precaution is the optimal care the society takes because it reduces the cost of the precaution and the expected accident cost thus minimizing the social cost. Therefore, decisions made by the tort law system should ensure that the incentives they give to the injurer to avoid the accident should enable them take an in-between precaution. The legal issues existing in tort law systems include giving parties incentives to acquire information on the accident occurrence. The court authority should ensure that incentives given for accessing information about the accident should not constrain the economy. This in one way relieves the country economic pressures. To minimize spending on risks, the tort law system should ensure a most favorable allocation of risks between the injurer and the victim, and it can only achieve this goal through insurance (Shavell 188). On the side of the transaction costs, the tort system’s goal is to minimize the administrative costs that result from the system’s attorney’s and magistrate’s payment. However there is conflict between the distinction on allocations of incentives towards the prevention or precautions taken or compensation for the accident. Acquiring equilibrium between the injurer and the victim will help achieve the social goal of compensation and deterrence and minimize cost on economy.

Service Quality Management Essay Example | Topics and Well Written Essays - 3000 words

Service Quality Management - Essay Example Doing things right all the time also involves making sure their service is fit for purpose, and that the service is what the customer is expecting. In an environment where customers are faced with increasing choice, getting this concept right is very important. Time is also a commodity for customers and therefore organisations need to ensure that their service delivery is fast and minimises the waiting period for customers, and this includes queue management. The ability to deliver on time and to the right specifications enhances an organisation's dependability advantage, as customers prefer consistency in their suppliers. Another important aspect of service delivery is the flexibility advantage, which goes hand in hand with choice. Most service organisations will offer variety and flexibility in a bid to stop their customer from going to one of their competitors. Another final important aspect of the service delivery process is the cost advantage which means costing its services appropriately and ensuring the cost reflects the quality of the service provided. This essay shall analyse service delivery at Top Shop which is a clothing retailer to illustrate the importance of this concept, and will proceed with a critical evaluation of customer satisfaction and customer loyalty in relation to service delivery. Top Shop is one of the Uni... These fashions also come in a wide variety and have limited store availability times attached to them, which further increases the perceived value and quality of the clothing items. In a bid to diversify, Top Shop has launched its Top Shop To Go service in London which is a free personal shopping service that aims to bring requested styles, colours and sizes to a location of the customer's choice, be it the home, office or hotel room. This service also gives the shopper the opportunity to try on clothes, and receive guidance and advice from the style advisor in their own surroundings. This service is very similar to the Ann Summers and Virgin Vie parties, which brings groups of people together in one place, and the Top Shop representative can effectively market to this group. This setting also introduces new customers and is more likely to generate sales of the new customers, due to social pressure, especially if everyone else in the group has purchased an items or items. This is an extension and improvement to Top Shop's service delivery channels, which it views as necessary in order for it to stay ahead of its competitors. Top Shop is a fashion retailer based on the high street, with service delivery though the internet and its new service, Top Shop To Go. This means that the customers come to Top Shop, as they are in control the demand. Therefore locating in a central location, which is accessible such as the high street, will ensure that Top Shop makes itself visible to all potential customers. The internet is another channel for service delivery, however, this could never be the sole channel, as customers still prefer to try on clothes and shoes before

Literary genres Essay Example for Free

Literary genres Essay lit ·er ·a ·ture (ltrchr, -chr) noun. 1. The body of written works of a language, period, or culture. 2. Imaginative or creative writing, especially of recognized artistic value:Literature must be an analysis of experience and a synthesis of the findings into a unity (Rebecca West). 3. The art or occupation of a literary writer. 4. The body of written work produced by scholars or researchers in a given field:medical literature. 5. Printed material: collected all the available literature on the subject. 6. Music All the compositions of a certain kind or for a specific instrument or ensemble: the symphonic literature. 1.  written material such as poetry, novels, essays, etc. , esp works of imagination characterized by excellence of style and expression and by themes of general or enduring interest 2. the body of written work of a particular culture or people Scandinavian literature 3. written or printed matter of a particular type or on a particular subject scientific literature the literature of the violin 4. printed material giving a particular type of information sales literature 5. the art or profession of a writer 6. Obsolete learning 1. writing in prose or verse regarded as having permanent worth through its intrinsic excellence. 2. the entire body of writings of a specific language, period, people, etc. 3. the writings dealing with a particular subject. 4. the profession of a writer or author. 5. literary work or production. 6. any kind of printed material, as circulars, leaflets, or handbills. 7. Archaic. literary culture; appreciation of letters and books. | literature the humanistic study of a body of literature; he took a course in Russian lit. literary study the humanistic study of literatureliterature creative writing of recognized artistic value| | | literature published writings in a particular style on a particular subject; the technical literature; one aspect of Waterloo has not yet been treated in the literaturepiece of writing, written material, writing the work of a writer; anything expressed in letters of the alphabet (especially when considered from the point of view of style and effect); the writing in her novels is excellent; that editorial was a fine piece of writingliterature creative writing of recognized artistic valuehistoriography a body of historical literature| | | literature the profession or art of a writer; her place in literature is secureprofession an occupation requiring special education (especially in the liberal arts or sciences)literature creative writing of recognized artistic valueTypes of Literature: Fictional Literature Drama: Drama is the theatrical dialog performed on stage, it consists of 5 acts. Tragedy, comedy and melodrama are the sub types of drama. e. g William Shakespeare, an Elizabethan dramatist composed the plays Hamlet, Romeo and Juliet, King Lear that are famous because of its combination of tragedy and comedy. Problem play, farce, fantasy, monologue and comedy of manners are some kinds of drama. Tragedy: It is a story of the major character who faces bad luck. Tragedy, elements of horrors and struggle usually concludes with the death of a person. The Illiad and The Odyssey by Homer are the two famous Greek tragedies. Comedy: The lead character overcomes the conflicts and overall look of the comedy is full of laughter and the issues are handled very lightly. The elements used in the comedy are romanticism, exaggeration, surprises and a comic view of life. Melodrama: Melodrama is a blend of two nouns melody and drama. It is a musical play most popular by 1840. Uncle Toms Cabin is one of the most popular plays describing cruelty of labor life. It has happy ending like comedy. Tragicomedy: The play that begins with serious mode but has a happy ending is tragicomedy. Prose Literature History, journalism, philosophy, fiction and fantasy writings, scientific writings, childrens literature authors and writers are included in Prose Literature. Myth Myths are the fairy tales with lots of adventure, magic and it lacks scientific proof. Nursery rhymes, songs and lullabies are forms of myths that strike the interest of children. Creative and nature myth are stories of the stars and moon. Magic tales are wonderful tales of quests and fantasy. Hero myths are ideal heroes of adventure. Short story  The small commercial fiction, true or imaginary, smaller than a novel is known as short story. Short stories are well-grouped that followed the sequence of easy and no complexity in beginning, concrete theme, some dialogs and ends with resolution. They are oral and short-lived which have gossip, joke, fable, myth, parable, hearsay and legend. Novel Novel can be based on comic, crime, detective, adventurous, romantic or political story divided into many parts. The major kinds of novels are: Allegory: The symbolic story revolves around two meanings. What the writer says directly is totally different from the conveyed meanings at the end. Political and Historical allegory are two forms of Allegory. Comedy: Satire is very common form in comedy novels and tries to focus on the facts of the society and their desires. Epistolary: The collection of letters or mails is the epistolary novels. Samuel Richardsons Pamela and Henry Fieldings Joseph Andrew are the few examples of Epistolary novels. Feminist: These types of novels are written by women writers around the world to describe the place of women in a male dominated society. E. g Virginia Woolfs A Room of ones Own. Gothic: Gothic fiction is the combination of both horror and romance. Melodrama and parody were grouped in the Gothic literature in its early stages. Ironic: Ironic novels are known for excessive use of narrative technique. It is satire on the contemporary society about cultural, social and political issues. Realism: The realistic novels are based on the truths of ordinary society and their problems. It focuses on the plot, structure and the characters of the novel. Romance: Love and relationship topics are handled optimistically in the romantic novels. It originated in western countries; basically the story revolves around love affairs of main characters. Some popular sub categories of romantic novels are paranormal, erotic, suspense, multicultural and inspirational romance. Narration: In narrative style, writer becomes the third person who narrates whole story around the characters. Naturalism: Naturalism is based on the theory of Darwin. Picaresque: It is opposite to romance novels as it involves ideals, themes and principles that refuse the so-called prejudices of the society. Psychological: Its the psychological prospective of mind with a resolution. Satire: Satirical novels criticize the contemporary society. The most famous novels are Jonathan Swifts Gullivers Travels (1726), Kingsley Amiss Lucky Jim (1954), George Orwells Animal Farm and Randell Jarrells Pictures from an Institution (1954). Stream of Consciousness: James Joyces stream of consciousness is all about the thought coming up in the minds of the readers. A novel also constitutes categories on social and political aspects like proletarian, psychological, protest novel, government, didactic, materialist novel, allegorical novel, novel of engagement, naturalistic novel, Marxist novel, radical novel, revolutionary novel, anti-war novel, utopian novel, futuristic novel, anarchist novel, problem novel, social philosophy novel, novel of ideas, problem play and speculative novel. Folk Tale Folk Tales are traditional stories that have been creating interest since ancient times. The children and old persons like religious story, magic and superstition as well. Fable, tall tales, cumulative, trickster and proverbs are the sub categories of folk tales. Mythology or legend is the ancient religious stories of origin and human civilization such as story of Robin Hood. Types of poetry Poetry is the spontaneous overflow of powerful feelings recollected in the tranquility. Greek poetry is found in free verse and we have rhymes in the Persian poem. Are you wondering how to write a poem, here are the followings forms of poem? Sonnet: Sonnet is the short poem of 14 lines grouped into Shakespearean and Italian sonnets. Ballad: The poems that are on the subject matter of love and sung by the poet or group of singers as telling readers a story. Elegy: This type of poem is the lamenting of the death of a person or his near one. Elegy Written in Country Churchyard by Thomas Gray is one of the famous poems marked as sad poems of the ages. Ode: Ode is the formal and long poem serious in nature. Allegory: Allegory is the famous form of poetry and is loved by the readers because of its two symbolic meanings. One is the literal meaning and another is the deep meaning. Epic and Mock epic: Epics are the narrative poems that convey moral and culture of that period. The Odyssey and Iliad are one of the largest philosophical epics written by Samuel Butler. Rape of the Lock is the great mock epic focusing on the minor incident of cutting of a curl. Lyric: It has Greek origin that gives a melody of imagery. It is the direct appeal of a poet to the readers about any incident or historical events. Lyrics are most of the time similar to ode or sonnets in the form. Nonfiction Literature: Nonfiction Literature is opposite to fiction as it is informative and comprises the interesting facts with analysis and illustrations. Main types of Non- fiction literature Autobiography and Biography An autobiography is the story of the authors own life. Family Life at the White House by Bill Clinton is focused on his life and achievements. Wings of fire by Dr. A. P. J. Abdul Kalam, Mein kampf of Adolph Hitler are the autobiography books on real life. Essay Generally the authors point of view about any particular topic in a detailed way is an essay. Essay has simple way of narrating the main subject; therefore they are descriptive, lengthy, subject oriented and comparative. Different types of essay: Personal essay, expository essay type, response essay, process essay, persuasive essay, argumentative essay, critical essay type, interview essay, reflective essay type, evaluation, observation essay, comparison type of essay, application essay, compare and contrast essay and narrative essay type. Literary criticism It is the critical study of a piece of literature. Here critics apply different theories, evaluation, discussion and explanation to the text or an essay to give total judgments. Plato, Aristotle, T. S. Eliot, Saussure and Frye are some of the famous critics. Travel literature It is the narration of any tour or foreign journey with the description of the events, dates, places, sights and authors views. Francis Bacons natural philosophies in the middle of Seventeenth century is one famous example of travel literature. Diary Diaries are the incidents recorded by the author without any means of publishing them. It is the rough work of ones daily routine, happenings, memorable days or events in their life. E. g. Anne Franks Diary of a Young Girl was published by her father in 1940s; its a story of a girl trapped during German invade Amsterdam. Diaries consists of business letters, newsletters, weather listing. In todays world of Internet, writers write in blogs, forums, polls and social networking sites to convey their thoughts. This also is a form of diary writing. Some profound forms of diaries are online diary, travel, sleep, tagebuch, fictional, dream and death diaries. Journal Journal is one of types of diaries that records infinite information. They are of following types: Personal: It is for personal analysis. In this journal one can write his goal, daily thoughts, events and situations. Academic: It is for students who do research or dissertation on particular subjects. Creative journals: Creative journals are the imaginative writing of a story, poem or narrative. Trade: Trade journals are used by industrial purposes where they dictate practical information. Dialectical: This journal is use by students to write on double column notebook. They can write facts, experiments, and observation on the left side and right side can be a series of thoughts and response with an end. Newspaper It is a collection of daily or weekly news of politics, sports, leisure, fashion, movies and business. Magazine Magazines can be the current affairs or opinions well collected covering various content. Frame Narrative The psychoanalysis of human mind is present in a frame narrative. Here we find another story within the main story. Some of the popular narratives are Pegasus, Wuthering Heights, The Flying Horse, The Three Pigs, A Time to keep and the Tasha Tudor Book of Holidays. Outdoor literature Outdoor literature is the literature of adventure that gives whole exploration of an event. Exciting moments of life such as horse riding, fishing, trekking can be a part of literature. Some outdoor books are The Adventures of Tom Sawyer by Mark Twain, Treasure Island by Robert Louis, Voyages by Richard Hakluyt and A Short Walk in the Hindu Kush by Eric Newby. Narrative form of Literature Today we find movies, audio and video CDs and Cassettes that present current literature in use. Digital poetry is an upcoming trend too. Comic books, cartoons, eBook and Internet games are the learning methods for children. Literature includes centuries, human nature, cultures and souls. Isnt it? Read more at Buzzle: http://www. buzzle. com/articles/types-of-literature. html|