Abstract

http://ssrn.com/abstract=2029953
 
 

References (50)



 


 



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

July 28, 2015


Abstract:     
We provide evidence suggesting that managers use financial statement misstatements which improve reported results to facilitate acquisitions. Specifically, we find that firms misstating their financial statements are more likely to make stock-based acquisitions, but not cash-based acquisitions, after the start of the misstatement. In addition, misstatements classified as errors are not associated with stock-based acquisitions. We also find that managerial overconfidence and entrenchment are associated with managers making acquisitions after misstatements. Stock price reactions to restatement announcements are more negative, by 770 basis points on average, when stock-based acquisitions were made during the misstatement period, and these acquisitions 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 and these acquisitions are largely value destroying.

Number of Pages in PDF File: 55

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

JEL Classification: G14, G34, M41, M43


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Date posted: March 27, 2012 ; Last revised: August 5, 2015

Suggested Citation

Kravet, Todd D. and Myers, Linda A. and Sanchez, Juan Manuel and Scholz, Susan, Do Financial Statement Misstatements Facilitate Corporate Acquisitions? (July 28, 2015). 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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