Do Mandatory Accounting Disclosures Impair Disclosing Firms’ Competitiveness? Evidence from Mergers and Acquisitions

50 Pages Posted: 12 Mar 2018

See all articles by Daniel W. Collins

Daniel W. Collins

University of Iowa - Department of Accounting

Jaewoo Kim

University of Oregon - Department of Accounting

Heejin Ohn

University of Oklahoma

Date Written: March 12, 2018

Abstract

This paper examines whether mandatory accounting disclosures in financial reports impair disclosing firms’ competitiveness by inducing competitors to take actions. To capture firm-level variation in product market competition, we rely on the product similarity measure developed by Hoberg and Phillips (2016). Using M&A-related disclosures that are mandated by materiality thresholds, we find that disclosing firms experience a disproportionate increase in product similarity subsequent to M&A transactions relative to non-disclosing M&A firms. Cross-sectional analyses reveal that the effect is more pronounced when the firms obtain greater synergy gains via M&A or achieve greater product differentiation in the year of an M&A. We also document that rivals of disclosing firms are more likely to engage in an M&A transaction in the following year relative to rivals of non-disclosing firms, and that competition between an acquirer and rivals increases both when the acquirer discloses and when rivals conduct M&A. Collectively, our findings suggest that mandatory M&A-related sales and profit disclosures have an adverse impact on disclosing firms’ competitiveness in product markets.

Keywords: Real Externalities, Proprietary Cost of Disclosures, M&A, Product Market Competition, Product Similarity, Materiality

JEL Classification: G34, M41

Suggested Citation

Collins, Daniel W. and Kim, Jaewoo and Ohn, Heejin, Do Mandatory Accounting Disclosures Impair Disclosing Firms’ Competitiveness? Evidence from Mergers and Acquisitions (March 12, 2018). Available at SSRN: https://ssrn.com/abstract=3138584 or http://dx.doi.org/10.2139/ssrn.3138584

Daniel W. Collins

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0912 (Phone)
319-335-1956 (Fax)

Jaewoo Kim (Contact Author)

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Heejin Ohn

University of Oklahoma ( email )

Michael F. Price College of Business
307 W Brooks, AH200F
Norman, OK 73019-4004
United States
(405) 325-5780 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
235
Abstract Views
1,855
rank
154,525
PlumX Metrics