Accounting Choice, Announcement Returns and Operating Performance in Stock-for-Stock Acquisitions

45 Pages Posted: 11 Feb 2009

See all articles by Shail Pandit

Shail Pandit

University of Illinois at Chicago

Date Written: February 10, 2009

Abstract

Until 2001, certain stock acquisitions could be accounted for as pooling-of-interests. There were concerns that pooling was associated with earnings fixation and weak corporate governance. I investigate the cross-sectional variation in the purchase-pooling choice and its association with acquisition-related performance.

In a sample of 390 stock deals over 1993-1999, I find pooling is associated with earnings fixation and weak governance. CARs around pooling announcements are lower compared with purchase announcements. Pooling acquirers achieve earnings growth, but their revenue growth and operating efficiency decline. The evidence suggests the previously documented inferior performance of stock acquirers is largely contributed by pooling firms.

Keywords: mergers, acquisitions, takeovers, corporate governance, operating performance

JEL Classification: G14, G34, M41

Suggested Citation

Pandit, Shailendra, Accounting Choice, Announcement Returns and Operating Performance in Stock-for-Stock Acquisitions (February 10, 2009). UIC College of Business Administration Research Paper No. 09-06, Available at SSRN: https://ssrn.com/abstract=1340516 or http://dx.doi.org/10.2139/ssrn.1340516

Shailendra Pandit (Contact Author)

University of Illinois at Chicago ( email )

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