The effect of target-firm accounting quality on valuation in acquisitions

• Autores: Maureen F. McNichols, Stephen R. Stubben
• Localización: Review of Accounting Studies, ISSN-e 1573-7136, Vol. 20, Nº. 1, 2015, págs. 110-140
• Idioma: inglés
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• Resumen

  • We examine whether acquisitions are more profitable for acquirers when the firms they target disclose higher-quality accounting information. If accounting information reduces uncertainty in the value of the target firm by facilitating a more precise valuation, we predict that managers of the acquiring firm can bid more effectively and pay less to acquire a target firm that has high-quality accounting information. Using a large sample of acquisitions of public firms from 1990 to 2010, we find evidence consistent with our prediction. Specifically, when target firms have higher-quality accounting information, acquirer returns around the acquisition announcement are higher and target returns are lower—consistent with acquirers capturing a greater portion of acquisition gains by paying less for target firms. These findings, which are robust to a variety of controls and alternative measures of uncertainty and accounting quality, suggest that higher-quality accounting information leads to better bidding decisions in acquisitions.