Authors: Seraina Anagnostopoulou, Andrianos Tsekrekos

Title: Accounting comparability between M&A bidders and targets and deal outcome

Abstract

This study examines whether acquirers make intra-industry better acquisition decisions when target firms’ financial statements exhibit greater comparability with those of the acquirer. Unlike existing literature (e.g. Chen et al. 2018), we do not examine accounting comparability between the M&A target and its industry peers, but accounting comparability of the M&A target to the deal acquirer. We hypothesize and find that higher accounting comparability between acquirers and targets in intra-industry deals makes these deals perceived as less risky by investors, leading to lower acquirer abnormal returns around the deal announcement date. We also find that (a) higher financial reporting comparability between the acquirer and the target in same-industry M&A deals positively associates with long-run market deal performance, and (b) post-acquisition divestitures are less likely when target firms’ financial statements are more comparable to the  acquirer’s financial statements. Both (a) and (b) above indicate that higher target-to-acquirer comparability leads to more successful M&As. Our findings are less pronounced for deal acquirers that are operationally more complex (i.e. operating in more business segments and so could suffer from less efficient allocation of capital), and less creditworthy (i.e. high Z-score), and more pronounced for acquirers with fewer anti-takeover protection provisions in place.