We’ve updated “Perfecting the Art of the Deal,” a working paper that applies our research to potential mergers and acquisitions. Read the introduction below and click to download the entire article in PDF form.

In acknowledging an enormous fraud at Indian outsourcer Satyam, the chief executive said the overstatements of earnings, revenue and cash were, well, not really intentional. It’s just that he had this small problem a few years ago, so he fudged a bit. Then, to cover that up, he had to fiddle a bit more. Then a bit more. Now, he’s having to acknowledge a scandal that threatens to kill a company that he spent more than two decades building and that employs 53,000 people worldwide.

Microsoft’s announcement that it will offer 0% financing on many software purchases of as much as $1 million is the sort of creative approach that healthy companies can take to win market share during the economic crisis.

Flush with cash, Microsoft can afford to offer financing at a time when other sources of credit have just about dried up for many businesses. In fact, the financing will cost Microsoft little. Once Microsoft has paid the huge costs for developing software, producing additional copies costs almost nothing, so even if the vast majority of customers defaulted on their 0% financing Microsoft would still come out ahead.

When things go bad, it’s easy to blame the CEO. Often, that blame is deserved. Still, it’s worth noting the intense pressure that CEOs are under to pursue strategies that eventually, perhaps inevitably, lead their companies to failure. Take the case of Freddie Mac, the large mortgage finance company that has lost more than $80B, [...]

Although it hasn’t been widely noted, the planned sale at a distressed price of discount retailer Steve & Barry’s has a striking link to the subprime mortgage mess. The link is that Steve & Barry’s and the subprime lenders relied on clever financial engineering that worked for a time, even for years, but that was clearly unsustainable and should have been recognized as such by management and investors.