The Disciplinary Role of Financial Statements: Evidence from Mergers and Acquisitions of Privately Held Targets

58 Pages Posted: 27 Jan 2019

See all articles by Ciao-Wei Chen

Ciao-Wei Chen

University of Illinois at Urbana-Champaign - Department of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: December 28, 2018

Abstract

This study examines whether requiring the disclosure of audited financial statements disciplines managers’ mergers and acquisitions (M&A) decisions. When an M&A transaction meets certain disclosure thresholds, the SEC requires the public acquirer to disclose the target’s audited financial statements after the merger is completed. Using hand-collected data, I find that the disclosure of private targets’ financial statements is associated with better acquisition decisions. Furthermore, I find that this disciplining effect of disclosure is more pronounced when monitoring by outside capital providers is more difficult and costly, and when other disciplining mechanisms are weaker. Finally, these findings are robust to several alternative explanations, such as monitoring from blockholders and voluntary disclosures. In sum, the evidence suggests that the ex-post mandatory disclosure of private targets’ accounting information disciplines managers’ acquisition decisions and improves acquisition efficiency.

Keywords: disclosure,mergers and acquisitions, disciplinary role, private firms

JEL Classification: G34, M40, M41, M48

Suggested Citation

Chen, Ciao-Wei, The Disciplinary Role of Financial Statements: Evidence from Mergers and Acquisitions of Privately Held Targets (December 28, 2018). Available at SSRN: https://ssrn.com/abstract=3312969 or http://dx.doi.org/10.2139/ssrn.3312969

Ciao-Wei Chen (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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