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

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.

Abstracts List of figures List of tables List of contributors Preface Acknowledgments List of abbreviations 1 Introduction Amir Amel-Zadeh and Geoff Meeks PART I Accounting procedures 2 An outline of issues in accounting for M&A Amir Amel-Zadeh, Geoff Meeks and J. Gay Meeks 3 Seventy years of accounting standards for M&A Kevin Li and Geoff Meeks 4 Developing new accounting standards for M&A: a standard-setters’ perspective David Tweedie and Geoffrey Whittington 5 Stewardship and value-relevance in accounting for the depletion of purchased goodwill Amir Amel-Zadeh, Jonathan Faasse, Kevin Li, and Geoff Meeks PART II Managing perceptions of performance around M&A 6 Stock prices and earnings management around M&A transactions Antonia Botsari 7 Earnings forecasts accompanying a bid Amir Amel-Zadeh and Geoff Meeks 8 Managing earnings through M&A Geoff Meeks and J. Gay Meeks PART III Using accounts to measure the impact of M&A on performance 9 Measuring post-acquisition performance: introduction Amir Amel-Zadeh and Geoff Meeks 10 An early attempt to use accounting data to estimate the impact of M&A on financial performance Geoff Meeks 11 The impact of M&A on performance: alternative measures of rates of profit Geoff Meeks and J. Gay Meeks 12 Operating performance improvements after corporate takeovers: fact or fallacy? Amir Amel-Zadeh 13 The financial performance of acquired companies in the Chinese stock market Guoxiang Song and Geoff Meeks PART IV Concluding remarks 14 Continuing challenges in accounting for M&A Amir Amel-Zadeh and Geoff Meeks Author index Companies/corporations (short form name) index Subject index

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.