Abstract

http://ssrn.com/abstract=2029953
 
 

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Do Financial Statement Misstatements Facilitate Corporate Acquisitions?


Todd D. Kravet


University of Connecticut - Department of Accounting

Linda A. Myers


University of Arkansas

Juan Manuel Sanchez


Texas Tech University

Susan Scholz


University of Kansas - Accounting and Information Systems Area

April 24, 2014


Abstract:     
We investigate the association between corporate acquisition activity and the incidence of income-increasing financial statement misstatements, and we ask whether misstatements facilitate acquisitions. We find that firms misstating their financial statements are more likely to make stock-based acquisitions after the start of the misstatement but are not more likely to make cash-based acquisitions. We also find that misstatements beginning before stock-based acquisitions tend to be more serious than other misstatements. Moreover, stock price reactions to restatement announcements are more negative, by 280 basis points on average, when stock-based acquisitions were made during the misstatement period. We also find that stock-based acquisitions made during misstatement periods are significantly more likely to result in goodwill impairments than are stock-based acquisitions made during non-misstatement periods. Collectively, these results suggest that managers exploit earnings overstatements to facilitate acquisitions.

Number of Pages in PDF File: 52

Keywords: Misstatements, Restatements, Earnings Management, Mergers, Acquisitions

JEL Classification: G14, G34, M41, M43

working papers series


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Date posted: March 27, 2012 ; Last revised: April 25, 2014

Suggested Citation

Kravet, Todd D. and Myers, Linda A. and Sanchez, Juan Manuel and Scholz, Susan, Do Financial Statement Misstatements Facilitate Corporate Acquisitions? (April 24, 2014). Available at SSRN: http://ssrn.com/abstract=2029953 or http://dx.doi.org/10.2139/ssrn.2029953

Contact Information

Todd D. Kravet
University of Connecticut - Department of Accounting ( email )
School of Business
Storrs, CT 06269-2041
United States
Linda A. Myers
University of Arkansas ( email )
Fayetteville, AR 72701
United States
Juan Manuel Sanchez
Texas Tech University ( email )
Lubbock, TX 79409
United States
Susan Scholz (Contact Author)
University of Kansas - Accounting and Information Systems Area ( email )
1300 Sunnyside Ave
Lawrence, KS 66045
United States
785-864-7554 (Phone)
785-864-5328 (Fax)
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