Accounting for M&A: Uses and Abuses of Accounting in Monitoring and Promoting Merger

by Amir Amel-Zadeh (Editor), Geoff Meeks (Editor)

Overview

Spending on M&A has, in aggregate, grown so fast that it has even overtaken capital expenditure on increasing and maintaining physical assets. Yet McKinsey, the leading management consultancy, reports that "Anyone who has researched merger success rates knows that roughly 70% fail". The idea that businesses might be using huge and increasing sums of shareholders’ money for an activity that more often than not leads to failure calls into question the information on which M&A decisions are based.

This book presents statistical studies, case material, and standard-setters’ opinions on company accounting before, during, and after M&A. It documents the manipulation of annual accounts by acquirers ahead of share for share bids, biased forecasts of post-merger earnings by bidders, and devices to flatter earnings when recording the deal. It explores the challenges for standard-setters in regulating information flows during and after M&A, and for account-users wishing to learn from financial statements how a deal has affected performance.

Drawing on a wide range of international examples, this readable book is targeted not just at accounting specialists but at anyone who is comfortable reading the serious financial press, is intrigued by what is going on in the massive M&A market, and is concerned with achieving better-informed M&A. As such it might be of particular interest to business executives, lawyers, bankers, and investors involved in M&A as well as graduate students interested in researching or learning about the role of accounting in M&A.

Product Details

ISBN-13:	9780367492373
Publisher:	Taylor & Francis
Publication date:	12/13/2021
Series:	Routledge Studies in Accounting
Pages:	330
Product dimensions:	6.12(w) x 9.19(h) x 0.69(d)

About the Author

Amir Amel-Zadeh is Associate Professor of Accounting at Saïd Business School, University of Oxford, and Associate Member of the Oxford-Man Institute of Quantitative Finance. Prior to joining Saïd Business School, Amir held a faculty position at Judge Business School, University of Cambridge, and prior to that worked at Lehman Brothers in London. He received his PhD and MPhil in finance from the University of Cambridge. He has been visiting scholar at Harvard Business School, at New York University Stern School of Business, and at Columbia Business School. His research examines the economic consequences of voluntary and mandatory corporate reporting, particularly during major corporate events such as M&A.

Geoff Meeks is Emeritus Professor and Honorary Director of Research at University of Cambridge, Judge Business School. He has held positions at the University of Edinburgh, Price Waterhouse, the Cambridge Economics Faculty and Cambridge Judge Business School, where he served inter alia as Acting Dean; he has been visiting scholar at Harvard Business School, INSEAD and London School of Economics. His publications are mainly in accounting, economics, and finance and concentrate particularly on M&A, insolvency, and accounting procedures.

Table of Contents

1 Introduction PART I Accounting procedures 2 An outline of issues in accounting for M&A 3 Seventy years of accounting standards for M&A 4 Developing new accounting standards for M&A: a standard-setters’ perspective 5 Stewardship and value-relevance in accounting for the depletion of purchased goodwill PART II Managing perceptions of performance around M&A 6 Stock prices and earnings management around M&A transactions 7 Earnings forecasts accompanying a bid 8 Managing earnings through M&A PART III Using accounts to measure the impact of M&A on performance 9 Measuring post-acquisition performance: introduction 10 An early attempt to use accounting data to estimate the impact of M&A on financial performance 11 The impact of M&A on performance: alternative measures of rates of profit 12 Operating performance improvements after corporate takeovers: fact or fallacy? 13 The financial performance of acquired companies in the Chinese stock market PART IV Concluding remarks 14 Continuing challenges in accounting for M&A

Editorial Reviews

"Accounting for M&A is a must read for M&A practitioners and academics alike. By bridging the divide between theory and practice, Amel-Zadeh and Meeks do a masterful job of bringing clarity to an often opaque and complex aspect of the deal process. Seasoned transaction professionals as well as students of M&A will gain key insights and knowledge to better project, measure, track and report transaction performance, helping to avoid becoming another transaction failure statistic." — Dr Tim Galpin, Senior Lecturer in Strategy and Innovation, Saïd Business School, University of Oxford, and co-author of The Complete Guide to Mergers & Acquisitions.

"Accounting for M&A provides students and practitioners alike with valuable insights into the accounting challenges related to M&A transactions. It outlines how acquiring firms exploit reporting discretion to promote acquisitions, documents how standard-setters have grappled with conflicting views on how to account for M&A and discusses the benefits and pitfalls when using accounting information to measure the success of M&A. The book draws from a variety of evidence presenting case material, standard-setters’ interviews and econometric analyses. The book will be of particular interest to anyone involved in M&A and to graduate students interested in researching and understanding the role of accounting in M&A." — Prof. Martin Glaum, Professor of International Accounting, WHU – Otto Beisheim School of Management.

"A tour de force in bringing together a wide range of literature and research approaches to untangle the thicket of empirical results, theoretical arguments and historical influences on the development of accounting standards, that surround one of the most controversial arenas of corporate activity. It is the arena wherein the largest investments of shareholders’ money, as well as leading executives’reputations and the future livelihood of their workforces and value for their customers (and suppliers)—let alone wider social and environmental impacts—are most at stake. This clearly written book provides valuable insights for practitioners and policymakers as well as in-depth understanding for students of accounting and finance and for academic researchers. It emphasises the vital importance of the need to continue to improve accountability and accounting discipline in this arena and shows that the challenges affect not only Western capitalist stockmarkets and Western companies but also evaluation of Japanese approaches and of the reforms that have been undertaken in China’s restructuring of its industries." — Richard Macve, Emeritus Professor of Accounting, LSE.

"I am so much impressed by this book. This book has covered many accounting aspects of M&A. It identifies the contemporary problems of M&A accounting and articulates where these problems come from. Among other things I would like to emphasise the usefulness of the contents of this book to understanding the Discussion Paper "Business Combinations – Disclosures, Goodwill and Impairment" issued by IASB in March 2020.

In addition, I would like to emphasise three other features of this book.

Firstly, the interview with the two standard-setters (chapter 4) covers not only M&A accounting but also many other IFRS and other aspects of IASB’s activities such as the relationship with the Financial Accounting Standards Board of the US. Some of the items picked up here are even new to me even though I was an IASB Board member at the same time with them.

Secondly, we can understand that the current accounting for M&A, which requires non-amortisation and an annual impairment test for purchased goodwill, is a result of political compromise in the US and that accounting has been incorporated into IFRS. There have been different accounting methods that were required or allowed for purchased goodwill in different jurisdictions. Therefore, we can learn that the current accounting for M&A is not one that is set in stone (Chapter2).

Thirdly, there is an issue whether the purposes in financial reporting of stewardship and value-relevance make a difference to the information that should be provided to the users of financial statements (Chapter 5). This is a long-lasting argument and I am pleased that this book clearly articulates the issue and provides an example of the information that only stewardship requires. I strongly appreciate the high quality of the book and believe it should attract many readers who are interested in M&A accounting." — Tatsumi Yamada, Specially Appointed Professor of Chuo University; Outside Director, Mitsubishi Chemical Holding Corp’n; Former Member of the International Accounting Standards Board; and former Partner of KPMG AZSA LLC.

From the Publisher