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How far does financial reporting allow us to judge whether M&A activity is successful?

How far does financial reporting allow us to judge whether M&A activity is successful? Evidence from share price returns suggests that acquisitions destroy value. On the other hand, evidence from accounting measures of performance suggests that acquisitions give rise to synergies and therefore potentially create value. In this paper, we first revisit the UK evidence using an updated sample, and confirm that these findings still hold, and importantly hold in the period following the introduction of FRS10. We then reconcile the (apparently conflicting) findings from these market-based and accounting-based approaches. Using accounting measures of performance, we confirm the presence of synergies developed during acquisitions. Finally we show that post-acquisition abnormal returns are associated with news of synergistic benefits conveyed in the financial statements. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting and Business Research Taylor & Francis

How far does financial reporting allow us to judge whether M&A activity is successful?

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References (66)

Publisher
Taylor & Francis
Copyright
© 2016 Informa UK Limited, trading as Taylor & Francis Group
ISSN
2159-4260
eISSN
0001-4788
DOI
10.1080/00014788.2016.1182702
Publisher site
See Article on Publisher Site

Abstract

Evidence from share price returns suggests that acquisitions destroy value. On the other hand, evidence from accounting measures of performance suggests that acquisitions give rise to synergies and therefore potentially create value. In this paper, we first revisit the UK evidence using an updated sample, and confirm that these findings still hold, and importantly hold in the period following the introduction of FRS10. We then reconcile the (apparently conflicting) findings from these market-based and accounting-based approaches. Using accounting measures of performance, we confirm the presence of synergies developed during acquisitions. Finally we show that post-acquisition abnormal returns are associated with news of synergistic benefits conveyed in the financial statements.

Journal

Accounting and Business ResearchTaylor & Francis

Published: Jul 28, 2016

Keywords: mergers; acquisition; performance

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