The Role of Similar Accounting Standards in Cross-Border Mergers and Acquisitions

52 Pages Posted: 24 Jul 2015

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: July 22, 2015

Abstract

This study investigates whether differences in accounting standards across countries create information costs that 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 aggregate volume of M&A activity across country pairs is larger for pairs of countries with similar Generally Accepted Accounting Principles (GAAP), and that this increased volume of M&A activity is driven by target countries that also have strong enforcement. 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 similarity in GAAP in the pre-IFRS adoption period. Overall, our results highlight the role of accounting standards and enforcement in shaping cross-border M&A activity.

Keywords: Accounting Standards, Cross-border Investments, Mergers and Acquisitions, Mandatory IFRS Adoption

JEL Classification: M41

Suggested Citation

Francis, Jere R. and Huang, Shawn X. and Khurana, Inder, The Role of Similar Accounting Standards in Cross-Border Mergers and Acquisitions (July 22, 2015). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2634602

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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