Effects Of Accounting Information Comparability On Mergers And Acquisitions

Since the first wave of large-scale M&A in the United States in early 20 th century,M&A have sprung up rapidly in the world's major economies and emerging markets.Such M&A transactions frequency trend continues in the 21 st century.Although mergers and acquisitions occur in different regions have their own characteristics,the original intention of mergers and acquisitions to integrate resources and achieve value growth through mergers and acquisitions.Since the early stage of M&A research,the western scholars have foucused on the intrinsic relationship between merger and acquisition and enterprise value.However,there is still no widely accepted conclusion for this important research question.Similarly,the research on value creation of M&A in China's domestic control market are also inclusive.One view is that M&A can increase the value of the buyern company side because of the synergy effect.Another view is that the value increase brought by M&A is only meaningful to the target company shareholders.The shareholders of buyer side do not receive any benefit,even lose wealth in many cases.The relationship between M&A transactions and value creation is an important question in the M&A research.For the relationship between value creation and M&A activities,the current research mainly explain from the following five perspectives,the target company,trasaction attributes,industry characteristics and macro environment.In contrast,there is mot much research on value creation of M&A activities from the perspective of the relationship between buyer company side and target company,especially from the perspective of accounting information comparability.In fact,China is currently in the period of comprehensive reform,and the national economy has changed from high-speed growth to high-quality growth,the overall amount of accounting information in the capital market is rich,but the quality of such information still has room for improvement,poor information transparency will interfere with the full play of market resource allocation function.The information asymmetry between M&A parties is well known in such transactions.The information collection cost of the buyer party is higher,which leads to the increase of transaction cost and merger risk.In the current important period of deepening the economic reform,the Chinese standard-setting institutions aim to enhance the confidence of investors in making decisions by improving the quality of accounting information and by strengthen the important role of information transmission channels in mergers and acquisitions.Researchers believe that public accounting information provides an effective channel for communication and exchange between mergers and acquisitions,and can greatly reduce the information asymmetry in mergers and acquisitions.Moreover,better quality accounting information may improve the market information environment,enhance mutual trust between M&A parties,reduce potential merging risks and uncertainties,and encourage win-win cooperation.If the accounting information of the target party in M&A is comparable well to whom,such accounting information help the buy firm to understand the target firm more thoroughly,to better avoid the decision-making mistakes caused by information asymmetry which could result in value creation after M&A completed.Based on the above reasoning,this dissertation examines the following research questions from the perspective of information asymmetry theory and the usefulness of accounting information in decision-making.In different stages of M&A process,what is the specific mechanism of the target party's accounting information comparability affecting the value creation of M&A? When the merger and acquisition transaction parties are in different industries,compared with the merger and acquisition activities in the same industry,will the target party's accounting information comparability have a different impact on the value creation of mergers and acquisitions? Although scholars believe that the quality of accounting information helps to reduce the information asymmetry in M&A and promote mutual understanding between the two parties,there is a lack of research on the relationship between the quality of accounting information and M&A in different stages of mergers and acquisitions.In the process of M&A,how can the comparability of accounting information reduce information asymmetry more effectively? In addition,as the state-owned holding enterprises are more likely to be influenced by the government's administrative will in major strategic decisions,will the ownership attributes of the merger and acquisition parties have an impact on the relationship between the target party's accounting information comparability and M&A?This dissertation studies a sample of the merger and acquisition events between 2007 and 2017,in which both the mergers and acquisitions are listed A-share companies in China,I focus on the impact of the comparability of accounting information of the target firm on the target selection in the initial M&A stage,and the premium in the latter M&A stage and the merger and acquisition performance in the completed M&A stage.From the perspective of information asymmetry,this paper analyzes the influencing factors of promoting the comparability function of accounting information,examines the difference of the influence of the comparability of accounting information of the target company in different types of M&A.Since the state-controlled mergers and acquisitions are easy to be influenced by the administrative will of the government,this paper also examines the impact of ownership attributes of mergers and acquisitions on the relationship between accounting information comparability of the target party and mergers and acquisitions(e.g.target selection,merger premium and mergers and acquisitions performance).This study found that:(1)The potential target firms with better accounting information comparability are more likely to be merged.When the total sample is divided into intra-industry and inter-industry sub-samples according to the industry attributes of both mergers and acquisitions,it is found that the impact of accounting information comparability on the selection of M&A target is more obvious in the inter-industry sub-samples.These results suggest that the target companies accounting information comparability have an important impact on the selection of M&A objectives,however the specific impact of different types of M&A exist differences.When a merger and acquisition buyer company chooses the merger and acquisition target,it not only consider the development direction of the potential target party and the degree of strategic plan matching,but also pay attention to the comparability of the accounting information of the target firm.(2)If the target company's accounting information is comparable to whom,the premium level of the purchaser firm paid is relatively low.When the total sample is divided into intra-industry and inter-industry sub-samples according to the industry attributes of the merger and acquisition parties,I find that the target party's accounting information comparability on the merger premium is more significant in the inter-industry sub-samples.These results suggest that the target party's comparability of accounting information has an impact on the level of M&A premium,but the specific degree of impact varies in different types of M&A.Therefore,in determining the cost of merger and acquisition,the purchasing party not only consider the scope of the target party's acceptance of the transaction price,but also make full use of the target party's comparability of accounting information to improve the accuracy of enterprise value assessment,enhance the target enterprise value analysis,reasonably control the range of merger and acquisition premium,and avoid excessive spending.(3)When the accounting information of the target party is comparable,the short-term market performance,long-term operating performance and post-merger synergy effect of the purchasing party are relatively better.After dividing the merger and acquisition sample into intra-industry sub-sample and inter-industry sub-sample,it is observed that the positive impact of the accounting information comparability of the target party on the above merger and acquisition performance is more significant in the inter-industry sub-sample.However,the comparability of the accounting information of the target party has no significant direct impact on the long-term market performance of the purchasing party.These results imply that: first,most investors in the market can efficiently perceive the positive impact of the target party's accounting information comparability on the value creation of mergers and acquisitions,and financial indicators can confirm this point in the period after the announcement of mergers and acquisitions.At the same time,there are many complex factors in the capital market that will affect the long-term market performance,so the comparability of accounting information of the target party may not improve the long-term market performance of the merger and acquisition party.Second,the comparability of the target party's accounting information will help to increase the overall value of the two parties.In summary,the comparability of target party's accounting information not only helps to improve the performance of the purchasing company,but also increases the level of synergy that regards to both M&A parties as a whole.(4)When the purchasing party is non-state-owned holding enterprise,the potential target enterprise with better accounting information comparability is more likely to be merged.Similarly,when the merger and acquisition party is non-state-owned holding enterprise,the target party accounting information comparability has stronger inhibitory effect on the merger premium,short-term market performance and long-term operation of the purchasing party.The positive effect of performance and overall synergy after merger is stronger.However,I don't find he ownership attributes of M&A have any direct impact on the relationship between the accounting information comparability of the target party and the long-term market performance of the purchasing party.These results show that under the background of the widespread government control over state-owned enterprises,especially for countries in emerging markets,the government administrative will has a great degree of interference on the merger and acquisition activities of state-owned holding enterprises,and the ownership attributes of mergers and acquisitions on the target side of accounting information comparability and mergers and acquisitions(objectives).Based on the existing research,this paper makes a thorough and systematic analysis of the impact of accounting information comparability on mergers and acquisitions.This work contribute to the current literature in the following ways.(1)A new perspective of understanding the intrinsic relationship between accounting information and M&A value creation.The existing research on value creation of mergers and acquisitions is mainly from the perspective of managers or synergy effect of both M&A parties.Less research examines the objective impact of the target party's accounting comparability on the value of mergers and acquisitions from the perspective of the target party's accounting comparability.In addition,the previous studies on the value effect of M&A mainly focus on the purchasing firm side or the target firm of to analyze the performance changes.This dissertation adds the target party accounting comparability as an additional factor to perform a comprehensive analysis of performance and enterprise performance.(2)The mechanism of how the comparability of accounting information can promote the value creation of M & A.This paper examines the impact of the comparability of accounting information on the target selection,premium and performance of M&A.The results sugget that the selection of potential target firm with high comparability of accounting information is helpful to reduce the transaction cost of mergers and acquisitions,improve the rationality of mergers and acquisitions pricing,promote the increase of the wealth of purchasing firm shareholders,and ultimately improve the purchasing firm's performance.This is like because the comparability of accounting information contributes to better communication,communication and coordination between mergers and acquisitions parties,improves the scientific decision-making of mergers and acquisitions strategy and the effectiveness of the implementation of mergers and acquisitions strategy,and ultimately creates the value of mergers and acquisitions.Furthermore,unlike the prior research focusing on the accounting conservatism and accounting information reliability,this dissertation considers the comparability of accounting information as an new research dimension in addition to other accounting quality characteristics.The results suggest the target-side comparability has a positive impact on the value creation of mergers and acquisitions.The target company as its own accounting information provider,has information advantage over the pruchasing company,especially in the uncertain environment.I find that the target firm accounting information comparability plays a more important role in the main merger decision-making.Such findings are consistent with the mechanism how the comparability of accounting information and the value creation of mergers and acquisitions are related.(3)It provides reference for the application of the accounting information comparability in ChinaFrom the perspective of the comparability of the quality of accounting information,this paper first chooses a more reasonable and systematic measurement method,uses DeFrance and other models to measure the comparability of listed enterprises by econometric analysis,and discusses the comparability of accounting information with the selection of merger and acquisition objectives,the premium of mergers and acquisitions,and the internal relationship between M&A firm performance.In the study of accounting information comparability and M&A target selection,M&A premium and performance,I add some variables with Chinese characteristics,such as the nature of M&A ownership,to make the research results more representative of China's objective reality.