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Acquisition‐Related Provision‐Taking and Post‐Acquisition Performance in the UK Prior to FRS 7

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  • Stephen Brown
  • Mark Finn
  • Ole‐Kristian Hope

Abstract

This paper examines the association between acquisiton‐related provision‐taking behaviour and post‐acquisition performance for a sample of UK firms that undertook large acquisitions between 1989 and 1995. We find evidence that provision‐taking was associated with declining accounting and market‐adjusted stock price performance over the three‐year period following the fiscal year of the acquisition. This relationship exists after controlling for a variety of factors, including method of payment in the acquisition and post‐acquisition cash flow performance. By implication, post‐acquisition abnormal returns appear to have been predictable based on publicly available information about the magnitude of the provisions. These findings are consistent with the following scenario: The management of the high provisioners used the provisions to insulate accounting earnings from the effects of declining cash flows. The market belatedly reacted to these firms' declining fortunes when net income was no longer inflated by provision reversals.

Suggested Citation

  • Stephen Brown & Mark Finn & Ole‐Kristian Hope, 2000. "Acquisition‐Related Provision‐Taking and Post‐Acquisition Performance in the UK Prior to FRS 7," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9‐10), pages 1233-1265, November.
    • Handle: RePEc:bla:jbfnac:v:27:y:2000:i:9-10:p:1233-1265:a
    DOI: 10.1111/1468-5957.00354
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    Cited by:

    1. Ludivine Chalençon, 2011. "La Performance des Fusions-Acquisitions : une Revue de la Littérature," Post-Print halshs-00690634, HAL.
    2. Imen Khanchel El Mehdi, 2014. "Accrual and cash flow anomalies in diversified firms: Impact of segment portfolio management," Working Papers 2014-76, Department of Research, Ipag Business School.
    3. repec:ipg:wpaper:2014-076 is not listed on IDEAS
    4. Elisa Roncagliolo & Francesco Avallone, 2021. "The complexity in measuring M&A performance: Is a multi-dimensional approach enough?," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2021(1), pages 89-117.
    5. Martin Bugeja & Natalie Gallery, 2006. "Is older goodwill value relevant?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(4), pages 519-535, December.

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