Differential market reaction to pooling and purchase methods
Article Abstract:
Previous research has yielded ambiguous results concerning whether the equity value of an acquiring firm significantly increases in the period surrounding the merger or the period of the merger announcement date. H. Hong's research into merger accounting methods indicates that there are positive abnormal returns for companies using purchase accounting methods rather than pooling methods. Research into the impact of the merger accounting method on returns sampled tax-free mergers using a refined cumulative average residual (CAR) methodology. Research results confirm Hong's conclusions, and indicate that: abnormal returns associated with purchase method mergers persist and originate apparently in pre-announcement period; the capital asset pricing model does not influence results; and abnormal returns arise partially from the association between CARs and the indirect cash-flow effects.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1990
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Acquisition accounting method and bid premia for target firms
Article Abstract:
The method of accounting used to account for a business combination may affect the structuring and classifying of a corporate acquisitions by a firm making a bid. An investigation was conducted to ascertain reflection of the benefits of accounting method in bid premia for targeted firms. Findings from an analysis of 95 stock-for-stock acquisitions, 59 of which were accounted as poolings and 36 of which were accounted as purchases, reveal that the bid premia of target firms reflects the affect of the acquisition accounting method. The average bid premia for acquisitions accounted for as poolings were higher than those of the acquisitions accounted for as purchases. Results also indicate that bidders are willing to pay a higher price to accrue the benefits derived from an acquisition's accounting method.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1990
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A perspective on accounting and stock prices
Article Abstract:
Accounting information is valuable for valuing stocks: financial analysts forecast future earnings in order to justify buy and sell recommendations. Scientific research of the effect of accounting information on stock prices commenced with Ball and Brown's (1968) study, which was grounded in the efficient markets hypothesis. Ball and Brown found that accounting information, specifically earnings, was used in developing prices, and the market anticipated the information in the annual accounting data. There has been a lack of progress in research after Ball and Brown's study that seeks to elucidate the relationship between stock valuation and accounting information. Future research should pay attention to the relation between the fundamentals of stock prices and accounting information.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1991
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