IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v69y2014i1p219-240.html

Mergers and Acquisitions Accounting and the Diversification Discount

Author

Listed:
  • CLÁUDIA CUSTÓDIO

Abstract

type="main"> q-based measures of the diversification discount are biased upward by mergers and acquisitions and its accounting implications. Under purchase accounting, acquired assets are reported at their transaction value, which typically exceeds the target's pre-merger book value. Thus, measured q tends to be lower for the merged firm than for the portfolio of pre-merger entities. Because conglomerates are more acquisitive than focused firms, their q tends to be lower. To mitigate this bias, I subtract goodwill from the book value of assets and a substantial part of the diversification discount is eliminated. Market-to-sales-based measures do not have this bias.

Suggested Citation

  • Cláudia Custódio, 2014. "Mergers and Acquisitions Accounting and the Diversification Discount," Journal of Finance, American Finance Association, vol. 69(1), pages 219-240, February.
    • Handle: RePEc:bla:jfinan:v:69:y:2014:i:1:p:219-240
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/jofi.12108
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:69:y:2014:i:1:p:219-240. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.