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SEC comment letters on form S-4 and M&A accounting quality

Author

Listed:
  • Bret A. Johnson

    (George Mason University)

  • Ling Lei Lisic

    (Virginia Polytechnic Institute and State University (Virginia Tech))

  • Joon Seok Moon

    (California State University, Northridge)

  • Mengmeng Wang

    (The University of North Carolina, Greensboro)

Abstract

Prior research on SEC comment letters has almost exclusively focused on reviews of periodic filings, such as 10-Ks. Transactional filing reviews, such as those related to mergers and acquisitions (M&A), are a priority of the SEC to which it dedicates significant resources. We help fill the void in the literature by examining the influence of SEC comment letters on one type of transactional filing, Form S-4, on the accounting quality of a newly merged entity. We find that S-4s that receive an SEC comment letter are less likely to have a restatement or a goodwill impairment after a merger or acquisition is completed. Our inferences remain the same using either an entropy-balanced sample or a propensity-score-matched sample based on firm and deal characteristics. These results are stronger for S-4 comment letters with higher intensity and M&A-specific comments. Finally, to explore plausible mechanisms and provide context, we examine specific disclosure changes in S-4 amendments filed during the filing review process and find evidence that the improved M&A accounting quality is related to revisions to the pro forma financial statements, the total purchase price, and goodwill allocations. Overall, our findings provide evidence on the effectiveness of the SEC’s comment letter process related to M&A.

Suggested Citation

  • Bret A. Johnson & Ling Lei Lisic & Joon Seok Moon & Mengmeng Wang, 2023. "SEC comment letters on form S-4 and M&A accounting quality," Review of Accounting Studies, Springer, vol. 28(2), pages 862-909, June.
    • Handle: RePEc:spr:reaccs:v:28:y:2023:i:2:d:10.1007_s11142-021-09659-9
    DOI: 10.1007/s11142-021-09659-9
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