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The role of target’s financial statement comparability in the efficiency of takeover decisions

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  • Lien Duong
  • Thu Phuong Truong

Abstract

We investigate whether acquiring firms make more profitable acquisitions when target firms’ financial statements are more comparable with their industry peers. We replicate the original sample of Chen et al. (2018) and extend their sample to the most recent year. We find that acquiring firms experience higher announcement returns, higher acquisition synergies and better post‐acquisition operating performance when acquiring targets with higher financial statement comparability. Our results are robust to the newly constructed measure of financial statement comparability, suggesting that comparable accounting information indeed facilitates the efficiency of capital allocation.

Suggested Citation

  • Lien Duong & Thu Phuong Truong, 2021. "The role of target’s financial statement comparability in the efficiency of takeover decisions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5731-5743, December.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:4:p:5731-5743
    DOI: 10.1111/acfi.12774
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    References listed on IDEAS

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    1. Krishnamurti, Chandrasekhar & Shams, Syed & Pensiero, Domenico & Velayutham, Eswaran, 2019. "Socially responsible firms and mergers and acquisitions performance: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
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    3. Jia†Chi Cheng & Ruei†Shian Wu, 2018. "Internal capital market efficiency and the diversification discount: The role of financial statement comparability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(5-6), pages 572-603, May.
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    5. Robert W. Faff & Abeyratna Gunasekarage & Syed M. M. Shams, 2020. "Does takeover competition affect acquisition choices and bidding firm performance? Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3581-3619, December.
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    Cited by:

    1. Jianghua Shen & Lingmin Xie & Zhimin Xie, 2022. "The unintended consequence of financial statement comparability: evidence from managerial learning practices," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3073-3106, September.

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