Financial Statement Comparability and the Efficiency of Acquisition Decisions

Ciao-Wei Chen; Daniel W. Collins; Todd D. Kravet; Richard D. Mergenthaler

doi:10.1111/1911-3846.12380

Back

Financial Statement Comparability and the Efficiency of Acquisition Decisions

Journal article

Open access

Peer reviewed

Financial Statement Comparability and the Efficiency of Acquisition Decisions

Ciao-Wei Chen, Daniel W. Collins, Todd D. Kravet and Richard D. Mergenthaler

Contemporary accounting research, Vol.35(1), pp.164-202

03/01/2018

DOI: 10.1111/1911-3846.12380

Files and links (1)

url

https://doi.org/10.1111/1911-3846.12380View

Published (Version of record) Open Access

Abstract

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 comparableas 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.

Business & Economics

Business, Finance

Social Sciences

Details

Title: Subtitle: Financial Statement Comparability and the Efficiency of Acquisition Decisions
Creators: Ciao-Wei Chen - University of Illinois Urbana-Champaign
Daniel W. Collins - University of Iowa
Todd D. Kravet - University of Connecticut
Richard D. Mergenthaler - University of Arizona
Resource Type: Journal article
Publication Details: Contemporary accounting research, Vol.35(1), pp.164-202
DOI: 10.1111/1911-3846.12380
ISSN: 0823-9150
eISSN: 1911-3846
Publisher: Wiley
Number of pages: 39
Grant note: University of Arizona Eller College of Management; University of Arizona Chartered Professional Accountants of Canada Tippie College of Business University of Connecticut School of Business
Language: English
Date published: 03/01/2018
Academic Unit: Accounting
Record Identifier: 9984962891502771

Metrics

8 Record Views