Accounting Comparability between M&A Bidders and Targets and Deal Outcome

Abstract

We examine whether acquirers make better acquisitions when target firms’ financial statements exhibit higher comparability with those of the acquirer. We hypothesize that higher comparability between M&A bidders/targets will result in lower deal integration and information processing costs, and easier detection of any financial misreporting practices. We examine long-run deal performance and find that financial reporting comparability between acquirers/targets is positively associated with long-run deal performance and makes post-acquisition divestitures less likely, consistent with comparability resulting in more successful acquisitions. We provide evidence on how comparative accounting information between M&A counterparties influences capital allocation decisions and value creation.

Keywords: Financial Statement Comparability, Mergers and Acquisitions, M&As, Synergies, Divestitures, Short-term and long-term M&A performance

JEL Classification: G14, G34, M41