Targets' Accounting Conservatism and the Gains from Acquisition

• 成果类型: Article
• 署名作者: Ahmed, Anwer S.; Chen, Lucy Huajing; Duellman, Scott; Sun, Yan
• 署名单位: Texas A&M University System; Texas A&M University College Station; Villanova University; Saint Louis University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12814
• 发表日期: 2023
• 页码: 7-40
• 关键词: financial-reporting quality; earnings quality; Cash flows; INFORMATION; FIRMS; accruals; mergers; STOCK; INVESTMENT; RECOGNITION

摘要

We present evidence on the effects of target firms' accounting conservatism in a merger and acquisition transaction. Conservatism is distinct from other accounting or accrual quality constructs examined in prior work. Its unique features can lead to potential benefits for both the targets and the acquirers. The use of conservatism by targets reduces acquirers' risks of acquiring underperforming assets or overpaying for well-performing assets. In addition, targets' conservatism results in greater production of verifiable information that can help the acquirers better estimate and realize synergies of the combined firm. Consistent with these arguments, we find that firms with greater accounting conservatism are more likely to receive a bid. We also find that targets' conservatism increases the deal premium and the announcement returns of both the targets and the acquirers, respectively. Overall, these results indicate that conservatism provides benefits to both sellers and buyers of equity in an acquisition transaction.