An empirical analysis of the decline of financial reporting quality following M&A.

摘要

I examine whether an acquirer's financial reporting quality declines after an M&A, and if so, how it changes over time. If an acquirer's financial information conveys inherent information uncertainty, and/or a manager of the firm is not motivated to do M&A by economic reasons, I predict that investors rationally create a lower price response to financial reporting for the firm, and have difficulty in valuing the firm after an M&A. Specifically, I expect acquirers (1) with higher information uncertainty; foreign targets, private targets, and inter-industry acquirers, and (2) with agency-motivated management to have more severe decline in financial reporting, and thus take longer time to recover over time following M&As. Using a sample of quarterly data of U.S. public acquirers over the period 1991-2010, I find evidence that acquirers experience a decline in financial reporting quality, measured by the earnings response coefficient (ERC), and that their financial reports are less value relevant following M&As. Also, I find that investors keep lower price reactions to financial reporting over time while recovering their valuations two quarters after M&As. With respect to the ERC results, I find that investors show lower price response to acquirers with foreign targets than acquirers with domestic targets. Also, I find that investors think acquirers with private targets experience less of a decline in financial reporting quality than acquirers with public targets. However, I fail to find that investors show less investor reaction to the quality of financial reporting for inter-industry acquirers later after M&A. With respect to the value relevance results, I find that the results are similar to the ERC results for foreign and private targets, but find that the value relevance of earnings of acquirers with interindustry targets is lower than that of acquirers with inter-industry targets. For a management motivation for M&A, my ERC results show that it is not clear that there is a quality difference in financial reporting of both agency-motivated and synergy-motivated acquirers. With respect to value relevance, investors think the value relevance of earnings for agency-motivated acquirers is less than that of synergy-motivated acquirers after M&A.