The Role of International GAAP in Cross-Border Mergers and Acquisitions

54 Pages Posted: 18 Aug 2012 Last revised: 19 Sep 2012

See all articles by Jere R. Francis

Jere R. Francis

Maastricht University

Shawn X. Huang

Arizona State University (ASU) - School of Accountancy

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Date Written: September 17, 2012

Abstract

This study investigates whether differences in accounting standards across countries inhibit firms from investing in foreign markets. Using the frequency and dollar magnitude of cross-border mergers and acquisitions (M&A) from 32 countries over the period 1998-2004, we find that the volume of M&A activity across country pairs is larger for pairs of countries with similar Generally Accepted Accounting Principles (GAAP). Moreover, we find that the takeover premium is higher if target countries’ GAAP is similar to that of the acquiring firm’s country. This finding is consistent with the notion that similar GAAP reduces information cost, which increases competition among bidders and therefore leaves more gain for target shareholders. We also find that the 2005 mandatory adoption of IFRS attracted more cross-border M&As among IFRS adopting countries, and that this increase in M&A activity within the IFRS countries is more pronounced for country pairs with low degree of similarity in GAAP in the pre-IFRS adoption period. Overall, our results highlight the role of accounting standards in shaping cross-border M&A activity.

Keywords: Accounting Standards, Cross-Country Analysis, IFRS, Mergers and Acquisitions

Suggested Citation

Francis, Jere R. and Huang, Shawn X. and Khurana, Inder, The Role of International GAAP in Cross-Border Mergers and Acquisitions (September 17, 2012). Available at SSRN: https://ssrn.com/abstract=2131472 or http://dx.doi.org/10.2139/ssrn.2131472

Jere R. Francis

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Shawn X. Huang (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

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