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International Acquisition Accounting Method and Corporate Multinationalism: Evidence from Foreign Acquisitions

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  • Kathleen M Dunne

    (College of Business Administration, Rider University)

  • Gordian A Ndubizu

    (Drexel University)

Abstract

This paper examines the effect of different international accounting and tax treatments for goodwill on targets shareholders' wealth. The evidence shows that foreign companies that write off goodwill against a reserve account transfer more wealth to the target shareholders than those that amortize goodwill against income. Further analysis reveals that foreign acquires that deduct goodwill for tax purposes transfer more wealth to the target stockholders at the acquisition announcement than other acquires. Such wealth transfers are precipitated by the competition for corporate control. Thus, the more advantageous international accounting and tax treatments for goodwill may leave U.S. bidders at a disadvantage as they compete with foreign acquirers for corporate control.Furthermore, contrary to the multinational network hypothesis, the study shows that for the firms in the sample, the acquirers with previous experience in the U.S. market transfer more wealth to target shareholders than those entering the U.S. market for the first time. On the other hand, the results for the relationship between industrial relatedness of merger partners and abnormal returns to target shareholders is mixed.© 1995 JIBS. Journal of International Business Studies (1995) 26, 361–377

Suggested Citation

  • Kathleen M Dunne & Gordian A Ndubizu, 1995. "International Acquisition Accounting Method and Corporate Multinationalism: Evidence from Foreign Acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(2), pages 361-377, June.
    • Handle: RePEc:pal:jintbs:v:26:y:1995:i:2:p:361-377
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    Cited by:

    1. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2018. "Does the debt tax shield distort ownership efficiency?," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 299-310.
    2. Pehr‐Johan Norbäck & Lars Persson & Jonas Vlachos, 2009. "Cross‐border acquisitions and taxes: efficiency and tax revenues," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(4), pages 1473-1500, November.
    3. Moshfique Uddin & Agyenim Boateng, 2009. "An analysis of short‐run performance of cross‐border mergers and acquisitions," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 8(4), pages 431-453, October.
    4. Herita Akamah & Ole-Kristian Hope & Wayne B Thomas, 2018. "Tax havens and disclosure aggregation," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(1), pages 49-69, January.
    5. Sjögren, Anna, 2010. "Graded Children – Evidence of Longrun Consequences of School Grades from a Nationwide Reform," Working Paper Series 839, Research Institute of Industrial Economics.
    6. Dirk Simons & Michael Ebert, 2008. "Interne Nutzung des Goodwill-Accounting als Informationsinstrument bei angestrebten Unternehmensübernahmen," Schmalenbach Journal of Business Research, Springer, vol. 60(59), pages 43-68, January.
    7. Saskia Kohlhase & Jochen Pierk, 2020. "The effect of a worldwide tax system on tax management of foreign subsidiaries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(8), pages 1312-1330, October.
    8. Kieran James & Janice How & Peter Verhoeven, 2008. "Did the goodwill accounting standard impose material economic consequences on Australian acquirers?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(4), pages 625-647, December.

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