| This study investigates managerial discretion in implementing SFAS 141-business combinations. Specifically I examine two questions: (1) what are the determinants of business combination disclosures, focusing on materiality and the role of managerial incentives and (2) whether acquirers allocate the purchase price strategically to non-amortizable intangible assets. Overall, my results suggest that the largest increase in disclosure level on business combinations occurs when the purchase price is greater than five percent of the acquirer's total assets. Disclosure level decreases with the portion of the purchase price allocated to goodwill and with the frequency of unexpected accruals in the years leading to the business combination, suggesting that acquirers overpay for the target, distort the purchase price allocation or tend to manage earnings disclose less information on business combinations. Results also suggest that acquirers are strategic in the allocation of the purchase price to non-amortizable intangible assets. Acquirers take into account investors' perceived functional fixation on earnings and the limited usefulness of goodwill for debt contracting. However, acquirers appear to be less concerned, when allocating the purchase price, with the possible increase in likelihood of impairment and in EPS volatility. |
