The Impact of Post-Merger Accounting Integration on Long-Term M&A Success

• In Event: M&A, Trading Volume, Analysts

Abstract

M&As involve a substantial amount of accounting work from due diligence to integration accounting. In this study, we investigate whether accounting-related integration issues during the immediate post-merger period are associated with internal information quality and the combined entity’s long-term M&A success. We expect that firms with greater accounting-related integration issues, which includes purchase price allocation and the integration of accounting systems, will experience poorer internal information and long-term post-acquisition operating performance. We first document that our inverse measures of accounting-related integration quality, abnormally high audit fees and audit report lags in acquisition years, are positively associated with management EPS guidance error. We then document that our measures are negatively (positively) associated with long-term changes in acquirer cash flows (post-M&A goodwill impairments). Our results are consistent with integration quality, in the period immediately following deal completion, affecting both the quality of information produced from the acquirer and target’s newly integrated accounting system as well as long-term post-M&A financial outcomes.

Authors

• Tom Adams, University of Connecticut

• Youree Kim, University of Connecticut

• Todd Kravet, University of Connecticut