Disclosure Quality and M&A Features: Empirical Evidence from an IFRS Environment

• In Event: Disclosure Quality

Abstract

Moving from the trade-off between the benefits of wider disclosure and its proprietary costs, this study investigates the association between specific merger and acquisition (M&A) features and business combinations (BCs) disclosure quality. The empirical analysis run on a sample of BCs carried out by Italian non-financial listed companies shows that disclosure quality is positively affected by the materiality of the BC and that increasing portions of the purchase price allocated to goodwill lead managers to reduce voluntary information first and even mandatory disclosures when the magnitude of goodwill reaches extremely high levels. Conversely, the nationality of the acquiree is neutral to disclosure quality. Mandatory and voluntary disclosures result to be driven by partially different M&A characteristics, with companies more involved in M&A activity being affected by a dragging effect for relatively standardised mandatory disclosures and an opposite annoyance effect for voluntary disclosures. Our findings contribute to accounting literature on determinants of disclosure quality investigating disclosure provided on crucial transactions like M&A, focusing on possible associations with M&A specific features while controlling for traditional firm characteristics, studying an IFRS environment with many differential characters compared to the U.S. one, disentangling overall, mandatory, and voluntary forms of disclosure, and using a dual approach to measure disclosure quality (weighted quality and mere compliance). Our findings may also be relevant for investors, standard-setters and regulators, as they suggest that the BC economic substance may be concealed behind absent or incomplete information, thus reducing the investors’ ability to evaluate future economic performance of the combined entity; they also signal the need for more stringent disclosure requirements on M&As by standard setters, and urgent efforts by regulators to introduce enforcement mechanisms that constrain managerial opportunism behind disclosure.

Authors

• Cristina Florio, University of Verona

• Andrea Lionzo, Catholic University of Sacred Heart (Milan)

• Silvano Corbella, University of Verona