The accounting choice issue and the M&A activity

EFM classification: 710, 160, 200This study addresses the issue of the accounting choice as a possible determinant of mergers & acquisitions (M&A) activity. The accounting choice has value implications, and managerial discretion can be used to meet financial reporting objectives (see e.g. Watts & Zimmerman, 1990). On the other hand, despite the existence of a wide empirical and theoretical research, the literature still lacks a convincing overall theory concerning M&A occurrence. Nevertheless, the overall evidence suggests that some macroeconomic variables are associated with the timing of M&A. This paper studies whether accounting choice developments can affect M&A activity together with macroeconomic, time, and several M&A endogenous variables. The findings show a significant positive relationship between M&A activity and stock market prices, and also several significant associations between M&A and other endogenous and exogenous explanatory variables, but no relationship between accounting choice and M&A activity

Business combinations accounting in the United States from AICPA to FASB: a study on the impact on M&A activity

This paper summarizes the problematic of accounting for business combinations since the 1960s. Albeit widely supported by the industry, the use of pooling of interests has been always subject to criticism, particularly from practitioners and academicians (see e.g. AAA, 1966; Mosich, 1968). In 1996, FASB added business combinations accounting to its agenda, with the purpose to improve its transparency. FASB would disallow the use of pooling of interests, despite numerous negative reactions from industry. Nevertheless, a later proposal of replacement of purchased goodwill amortization by impairment testing seems to have mitigated any outstanding criticism. Several authors (e.g. Zeff, 2002) described the fierceness of the lobbying on this FASB’s project. The paper studies whether SFAS 141 and SFAS 142 resulted in relevant economic consequences (see e.g. Zeff, 1978; Burchell et al., 1980; FASB, 1980) and finds that M&A activity has not been significantly affected by FASB’s change

Companies and professional boards’ reactions to new M&A accounting in the USA

Following G4+1 recommendations issued after a meeting in 1998, the Financial Accounting Standards Board (FASB) reshaped dramatically in 2001 the accounting for business combinations, which had remained unchanged for thirty years in the USA. With the publication of SFAS 141, FASB dropped pooling of interests method in favour of purchase method and with SFAS 142 amortization of goodwill recognized as result of a business combination was replaced by impairment tests. Business combinations includes a wide range of deals, such as mergers and acquisitions (M&A), and is arguably one of the most polemic accounting topics ever. AICPA APB opinions issued in 1970 seemed to have praised almost everybody – difficult task given the different views about the most appropriate practice to adopt – although some prominent authors, such as Stephen Zeff, remained opponents of pooling of interests. Others always defended that pooling was the fair method for the real and true mergers and therefore strongly disagreed with G+1 and FASB views, stressing that the new rules would turn impracticable some mergers deals with specific characteristics. The FASB certainly did not intend to change the M&A market dynamic through its new set of accounting rules. Nevertheless, the critical voices raised against the pooling method ban suggested that the M&A activity could have been affected. Therefore, the authors of this paper considered relevant to discuss potential impacts of this new standards. Preliminary results obtained with questionnaires sent to firms included in S&P 500 index will be also presented.London Metropolitan Universit

How compensation policy based on EVA performance reduces the conflict between managers and shareholders

There is a well-known conflict between managers and shareholders, superbly illustrated by the agency theory. A way for shareholders to ensure that managers will perform optimally, by taking the best actions and decisions, is to tie managers’ compensation to the performance of the firms. However, how can we fairly measure their performance? The Economic Value Added (EVA) methodology seems to be a good solution; recent events reinforced the idea that accounting indicators analysis may not be a suitable approach. The EVA is not a widespread concept in Portugal and its inception is relatively recent. To have an idea about how Portuguese managers perceive EVA and to understand which strategies (e.g. wages policy, bonuses, stocks and/or stocks options) firms utilize to make everybody happy, particularly managers, we developed a study with Portuguese public entities, using the questionnaire methodology.London Metropolitan Universit

Accounting for business combinations: (Un)desirable uniformity?

For many years, two methods existed alongside each other in the USA to account for business combinations: the pooling of interests method, applied to operations, such as mergers, that met all the conditions as stated at APB Opinion No. 16; and the purchase method for all other combinations. This dual accounting status was also widespread through many other countries, although some included substantial GAAP differences (e.g. USA versus UK) or applied restrictions to the application of those methods. The 1998 G4+1 Position Paper concerning business combinations recognized the inconvenience of this diversity in accounting and recommended the use of a single method, preferably the purchase method. Following a long period of discussion and controversy, as is usual when the business combinations topic is on the table, FASB published in 2001 the SFAS No. 141, which confirmed the purchase as the unique method for business combinations accounting. Simultaneously FASB also issued SFAS No. 142, which replaced goodwill amortization for impairment tests. In the meantime, IASB also started a business combinations project scheduled in two phases. The first has produced already IFRS 3, issued in March 2004, which also determined the purchase method as the single way for business combinations. The second phase is still in course and will provide guidance about the purchase method application (or ‘acquisition method’, as the board meanwhile decided to rename it). Once again, this topic has proved to be a very fertile ground for discussions, as IASB apparently dropped the ‘fresh start’ application and issued an ED with proposed amendments for the recently published IFRS 3. In the UK, business combinations accounting is still ruled by FRS 6 and FRS 7, which are not aligned with IFRS 3 and further IASB proposals. ASB is monitoring the IASB project and it is very likely to adopt its GAAPs, which means that business combinations accounting in the UK will change very soon. The accounting trend for business combinations seems now clear, but many questions remain, such as, was the pooling of interests method ban a major loss? Which challenges arise from replacement of goodwill amortization for impairment tests? With this paper the authors intend to discuss how and if business combinations accounting uniformity is indeed desirable, highlighting advantages and disadvantages, benefits and eventual problems for professionals and stakeholders. A final note to stress is that this paper deals with uniformity of business combinations accounting and not with international accounting harmonisation, to which we are required to refer since it is inherent to recent developments within this topic.The Institute of Chartered Accountants in England and Wale

Distribution and reasons explaining mergers and acquisitions (M&A) in the EU countries and the US

The M&A phenomenon has more than one century and has reached a particular highlight as the previous millenium went away. In fact, several mega operations occurred in the late nineties, particulary between 1998 and 2000, and it was very well widespread by worldwide media. The growing importance and dimension of the capital markets and also new business strategies seem to provide a major role for business combinations in a more global economy. The purpose of this paper is to analyse the M&A distribution among EU countries and the US. To achieve that we used several data, such as M&A activity and market capitalization, from 1990 to 1999. We also present some reasons that could explain the evolution of M&A activity in the EU in the nineties. The methodology used in the study is based on the regression model and in the 2000 European Comission M&A report.Instituto Politécnico de Braganç

Some evidence about how corporations perceive the success in M&A

URL: http://www.eiasm.org/associations/eaa/presentation.asp?id=1795 Conference URL: http://files.eiasm.org/eaa/pastconferences/2004.htmFinancial analysts, academics and media often warn about the risks inherent to Mergers & Acquisitions (M&A). In fact, failures are not uncommon in corporate M&A. Several studies concluded that M&A usually provide negative returns to the shareholders of the bidder corporations both in the short and medium terms. Other studies, using financial indicators such as return on investment (ROI), also suggested a negative performance from M&A deals. However, the success definition in M&A goes beyond the conclusions of that type of studies. After all, despite financial markets pressure, numbers are not everything in corporations’ existence. The aim of this paper is to discuss how corporate managers measure the success in M&A. We carried on a global study about M&A in Portugal, using the questionnaire methodology, which included the assessment of success by corporate managers. Some questions were made such as Hunt (1987) to make possible further comparisons between Portugal and the United Kingdom (UK). We also used some other evidence, brought by international consulting firms, to assess how much our findings could differ from other scenarios.FC

A Divergent Strain of Culex pipiens-Associated Tunisia Virus in the Malaria Vector Anopheles epiroticus

Here, we report the draft genome sequence of a divergent strain ofCulex pipiens-associated Tunisia virus (CpATV) identified in the malaria vectorAnoph-eles epiroticus(CpATV-AnE). CpATV-AnE expands the reference virus sequence, intro-ducing an extended replicase with novel virga-like domains. Our results suggest thatthe host range of CpATV includesAnophelessp. mosquitoes.Instituto de Patología VegetalFil: Debat, Humberto J. Instituto Nacional de Tecnología Agropecuaria (INTA). Instituto de Patología Vegetal (IPAVE). Córdoba; ArgentinaFil: Ribero, Jose M C. National Institute of Allergy and Infectious Diseases (NIAID-NIH). Laboratory of Malaria and Vector Research.Section of Vector Biology; Estados Unido

Microfibers for juice analysis by solid-phase microextraction.

In view of the interest in analyzing volatile compounds by SPME, the following five microfibers were tested, polydimethylsiloxane; polyacrylate; polydimethylsiloxane/divinylbenzene; carboxen/polydimethylsiloxane, and carbowax/divinylbenzene, to select the one which presents the best performance for the adsorption of the volatile compounds present in the headspace of acid lime juice samples. Sample stabilization time variations (30 and 60 minutes) were assessed as well the addition of NaCl to the samples. It was verified that the chromatogram with the most adsorbed volatile compounds was obtained with PDMS/DVB microfiber at 30 minutes and the addition of 0.2 g NaCl

M&A goodwill accounting: ‘Those are my principles, and if you do not like them...’

The accounting for business combinations has been a fertile source of controversies, to which the accounting for goodwill generated from Merger & Acquisitions (M&A) has made major contributions. Practitioners continue to suffer amidst industry lobbying versus regulators quarrels, and therefore one can argue that in M&A goodwill accounting: “Those are my principles, and if you do not like them ... … well, I have others”, as Groucho Marx would say. The replacement of amortisation of purchased goodwill and other intangible assets with definite life by impairment tests continues to raise concerns and therefore remains an accounting issue. Several authors, such as Hayn & Hughes (2006), questioned the superiority of impairment tests over amortisations, while Massoud & Raiborn (2003) suggested that managerial discretion in applying the goodwill impairment tests reduces the quality of reported earnings. Massoud & Raiborn (2003) also argued that SFAS No. 142 creates opportunities for earnings management, particularly in weak economic periods, where companies can undertake a “big bath”, i.e., to recognise big impairment losses in a period when earnings are already negatively affected. The early 2000’s was characterised by an economic downturn, which has resulted in a recession in the USA in the period between March and November 2001, as defined by the National Bureau of Economic Research (NBER). The dot.com bubble collapse, the September 11 attacks, and the numerous accounting and corporate scandals that resulted in the Sarbanes-Oxley act, are some of the events that could arguably trigger the recognition of massive losses following impairment testing in fiscal years 2001 and 2002. Significant impairment losses under SFAS 142 could only occur from fiscal year 2002 onwards, as this standard was first adopted in fiscal year 2002 by most companies. Unsurprisingly, a big bath earnings management has occurred in 2002, as documented in the accounting and financial literature. There is however another fact that may have eased the happening of this “big bath”: the change in the accounting regulation itself, which has diluted the negative impact on corporate earnings due to impairment charges. A big bath earnings management has occurred in 2002, as documented in the accounting and financial literature (see e.g. Jordan & Clark, 2004, 2005). There is however another fact that may have eased the happening of this “big bath”: the change in the accounting regulation itself, which has diluted the negative impact on corporate earnings due to impairment charges. By the means of financial reporting disclosures analysis, this paper examines several aspects of SFAS 142 adoption, namely its significant impact on corporate earnings reported in the USA.Instituto Politécnico de Braganç