SEC Comment Letters on Form S-4 and M&A Accounting Quality

65 Pages Posted: 21 Feb 2019 Last revised: 9 Sep 2021

See all articles by Bret A. Johnson

Bret A. Johnson

George Mason University - Department of Accounting

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business

Joon Seok Moon

California State University, Northridge

Mengmeng Wang

University of North Carolina (UNC) at Greensboro

Date Written: September 2021

Abstract

Prior research on SEC comment letters has almost exclusively focused on reviews of periodic filings, such as 10-Ks. Transactional filing reviews, such as those related to mergers and acquisitions (M&A), are a fundamental priority of the SEC and to which it dedicates significant resources. We help fill the void in the literature by examining the influence of SEC comment letters on one type of transactional filing, Form S-4, on the accounting quality of the newly merged entity. We find that S-4s that receive an SEC comment letter are less likely to have a restatement or a goodwill impairment after the M&A deal is completed. Our inferences remain the same using either an entropy-balanced sample or a propensity-score-matched sample based on firm and deal characteristics. These results are stronger for S-4 comment letters with higher intensity and M&A- specific comments. Finally, to explore plausible mechanisms and provide further context, we examine specific disclosure changes in S-4 amendments filed during the filing review process and find evidence that the improved M&A accounting quality is related to revisions to the pro forma financial statements, the total purchase price, and goodwill allocations. Overall, our findings provide evidence on the effectiveness of the SEC’s comment letter process related to M&A deals.

Keywords: SEC, Comment Letter, M&A, S-4, Accounting Quality

JEL Classification: G34, M41, M48

Suggested Citation

Johnson, Bret A. and Lisic, Ling Lei and Moon, Joon Seok and Wang, Mengmeng, SEC Comment Letters on Form S-4 and M&A Accounting Quality (September 2021). Available at SSRN: https://ssrn.com/abstract=3335390 or http://dx.doi.org/10.2139/ssrn.3335390

Bret A. Johnson (Contact Author)

George Mason University - Department of Accounting ( email )

Fairfax, VA
United States
703-993-8185 (Phone)

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

3007 Pamplin Hall
Blacksburg, VA 24061
United States

Joon Seok Moon

California State University, Northridge ( email )

18111 Nordhoff Street
Bookstein Hall 3223
Northridge, CA 91330-8372
United States

Mengmeng Wang

University of North Carolina (UNC) at Greensboro ( email )

P.O.Box 26170
Greensboro, NC 27412
United States

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