TY - JOUR
T1 - Financial Statement Comparability and the Efficiency of Acquisition Decisions
AU - Chen, Ciao Wei
AU - Collins, Daniel W.
AU - Kravet, Todd D.
AU - Mergenthaler, Richard D.
N1 - Funding Information:
* Accepted by Peter Clarkson. An earlier version of this paper was presented at the 2015 Contemporary Accounting Research Conference, generously supported by the Chartered Professional Accountants of Canada. We thank Peter Clarkson, April Klein (CAR Conference discussant), and two anonymous reviewers for their detailed com-ments on our paper. Ted Goodman (FARS discussant), Dan Wangerin (AAA discussant), workshop participants at the 2013 AAA Annual Meeting, the 2013 BYU Accounting Research Symposium, the 2014 FARS Midyear Meeting, HEC-Paris, Duke University, Penn State University, the University of Illinois at Chicago, the University of Illinois at Urbana–Champaign, the University of Iowa, University of Lancaster, University of Minnesota Research Conference, and the University of Rochester also provided helpful comments and suggestions on earlier versions of this paper. We also thank the University of Texas at Austin Capital Markets Readings Group for their helpful comments and suggestions. Finally, we thank Rodrigo Verdi for providing the SAS program for compara-bility measures. The authors acknowledge funding from the Tippie College of Business, The University of Arizona Eller College of Management, and University of Connecticut School of Business. † Corresponding author.
Publisher Copyright:
© CAAA
PY - 2018/3/1
Y1 - 2018/3/1
N2 - This study examines whether acquirers make better acquisition decisions when target firms’ financial statements exhibit greater comparability with industry peer firms. We predict and find that acquirers make more profitable acquisition decisions when target firms’ financial statements are more comparable—as evidenced by higher merger announcement returns, higher acquisition synergies, and better future operating performance. We also find that post-acquisition goodwill impairments and post-acquisition divestitures are less likely when target firms’ financial statements are more comparable. Finally, we find that acquirers benefit most from comparability when acquirers’ ex ante information asymmetry is higher, acquirers operate in volatile operating environments, and management knows relatively less about the target. In total, our evidence suggests targets’ financial statement comparability helps acquirers make better acquisition-investment decisions and fosters more efficient capital allocation.
AB - This study examines whether acquirers make better acquisition decisions when target firms’ financial statements exhibit greater comparability with industry peer firms. We predict and find that acquirers make more profitable acquisition decisions when target firms’ financial statements are more comparable—as evidenced by higher merger announcement returns, higher acquisition synergies, and better future operating performance. We also find that post-acquisition goodwill impairments and post-acquisition divestitures are less likely when target firms’ financial statements are more comparable. Finally, we find that acquirers benefit most from comparability when acquirers’ ex ante information asymmetry is higher, acquirers operate in volatile operating environments, and management knows relatively less about the target. In total, our evidence suggests targets’ financial statement comparability helps acquirers make better acquisition-investment decisions and fosters more efficient capital allocation.
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U2 - 10.1111/1911-3846.12380
DO - 10.1111/1911-3846.12380
M3 - Article
AN - SCOPUS:85041648326
SN - 0823-9150
VL - 35
SP - 164
EP - 202
JO - Contemporary Accounting Research
JF - Contemporary Accounting Research
IS - 1
ER -