Does investment-related pressure lead to misreporting? an analysis of reporting following M&A transactions

Daniel A. Bens, Theodore H. Goodman, Monica I Neamtiu

Research output: Contribution to journalArticle

19 Citations (Scopus)

Abstract

This study examines whether managers alter their financial reporting decisions in the face of investment-related pressure. We define investment-related pressure as the increased pressure managers feel to retain their job following an M&A poorly received by the market. We hypothesize that managers attempt to assuage pressure by delivering strong performance post-merger, creating incentives for misreporting. Our findings indicate that acquirers with more negative M&A announcement returns are more likely to misstate financial statements in the post-investment period and the issuance of misstated financials mitigates this pressure, at least in the near term. Our study contributes to the literature on the relation between corporate investing and financial reporting by showing how investment-related pressure leads to misreporting, even in a setting where the costs (e.g., greater probability of detection) are high. Our study also has implications for the large body of research that evaluates various consequences of M&As using post-merger performance. Specifically, researchers should be careful to distinguish real from misstated financial performance in the post-investment period.

Original languageEnglish (US)
Pages (from-to)839-865
Number of pages27
JournalAccounting Review
Volume87
Issue number3
DOIs
StatePublished - May 2012

Fingerprint

Misreporting
Managers
Mergers
Financial reporting
Investing
Financial performance
Incentives
Probability of detection
Costs
Financial statements
Announcement returns

Keywords

  • Investment
  • Mergers and acquisitions
  • Misreporting
  • Pressure on managers

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Does investment-related pressure lead to misreporting? an analysis of reporting following M&A transactions. / Bens, Daniel A.; Goodman, Theodore H.; Neamtiu, Monica I.

In: Accounting Review, Vol. 87, No. 3, 05.2012, p. 839-865.

Research output: Contribution to journalArticle

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