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Financial Directions - Volatility of big business exposed.

Europe Intelligence Wire

| November 01, 2002 | COPYRIGHT 2002 Financial Times Ltd. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

(From Financial Director)

The study* by Ernst & Young and Oxford Metrica tracks share price movements of Global 1000 companies over the past five years and analyses why companies experience sudden, major losses or gains in market value. The analysis concentrates on the top 100 increases or decreases relative to the market.

The survey found that, of the companies exhibiting the largest swings in value, 75% experienced an increase in share value of over 30% in their best-performing month, and a quarter outperformed the Global 1000 by over 50% in a single month. Two-fifths of the largest negative swings were losses in value of over 30% in their worst-performing month, and one-in-twenty under-performed their index by over 50%.

The larger (Global 500) companies surveyed experienced two-thirds of the total negative value shifts encountered. Two-thirds of positive value shifts originate from the smaller companies (Global 751-1000). "Clearly, it is easier for a firm to generate $1.2bn in value (30% of $4bn at the smaller end of the portfolio) than it is to generate $120bn (30% of $400bn at the larger end). For larger firms, it appears much easier to lose substantial value," the survey says.

The study found that the majority of events surrounding value shifts (positive and negative) were strategic in nature. The factors that had a positive effect on share price were: strategic alliances; mergers and ...

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