The role of accounting conservatism in M&A target selection

Mergers and acquisitions (M&As) are among the most important investment activities for companies, but they contain great risks. We investigate the role of accounting conservatism in M&A target selection and risk. We find that for risk-averse reasons, firms with high accounting conservatism a...

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Autores principales:	Qingquan Tang, Jingjing Guo, Zhihong Huang
Formato:	article
Lenguaje:	EN
Publicado:	Elsevier 2021
Materias:	Target selection Accounting conservatism Risk aversion Risk control Accounting. Bookkeeping HF5601-5689
Acceso en línea:	https://doaj.org/article/d93246e76a634141889c57fdb0e61e2e
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spelling	oai:doaj.org-article:d93246e76a634141889c57fdb0e61e2e2021-11-26T04:25:52ZThe role of accounting conservatism in M&A target selection1755-309110.1016/j.cjar.2021.100204https://doaj.org/article/d93246e76a634141889c57fdb0e61e2e2021-12-01T00:00:00Zhttp://www.sciencedirect.com/science/article/pii/S1755309121000460https://doaj.org/toc/1755-3091Mergers and acquisitions (M&As) are among the most important investment activities for companies, but they contain great risks. We investigate the role of accounting conservatism in M&A target selection and risk. We find that for risk-averse reasons, firms with high accounting conservatism are likely to acquire profitable targets and avoid loss-making targets. When such firms acquire loss-making targets, the conservatism’s risk-control role reduces M&A risk and increases M&A performance, but only when control of the target is transferred and the acquirer has high long-term debt and low management power. Furthermore, accounting conservatism reduces risk by increasing the maturity match between cash flow and debt. Our results suggest that accounting conservatism plays not only a risk-averse role but also a risk-control role, providing new evidence for the usefulness of accounting conservatism in M&A decisions.Qingquan TangJingjing GuoZhihong HuangElsevierarticleTarget selectionAccounting conservatismRisk aversionRisk controlAccounting. BookkeepingHF5601-5689ENChina Journal of Accounting Research, Vol 14, Iss 4, Pp 100204- (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Target selection Accounting conservatism Risk aversion Risk control Accounting. Bookkeeping HF5601-5689
spellingShingle	Target selection Accounting conservatism Risk aversion Risk control Accounting. Bookkeeping HF5601-5689 Qingquan Tang Jingjing Guo Zhihong Huang The role of accounting conservatism in M&A target selection
description	Mergers and acquisitions (M&As) are among the most important investment activities for companies, but they contain great risks. We investigate the role of accounting conservatism in M&A target selection and risk. We find that for risk-averse reasons, firms with high accounting conservatism are likely to acquire profitable targets and avoid loss-making targets. When such firms acquire loss-making targets, the conservatism’s risk-control role reduces M&A risk and increases M&A performance, but only when control of the target is transferred and the acquirer has high long-term debt and low management power. Furthermore, accounting conservatism reduces risk by increasing the maturity match between cash flow and debt. Our results suggest that accounting conservatism plays not only a risk-averse role but also a risk-control role, providing new evidence for the usefulness of accounting conservatism in M&A decisions.
format	article
author	Qingquan Tang Jingjing Guo Zhihong Huang
author_facet	Qingquan Tang Jingjing Guo Zhihong Huang
author_sort	Qingquan Tang
title	The role of accounting conservatism in M&A target selection
title_short	The role of accounting conservatism in M&A target selection
title_full	The role of accounting conservatism in M&A target selection
title_fullStr	The role of accounting conservatism in M&A target selection
title_full_unstemmed	The role of accounting conservatism in M&A target selection
title_sort	role of accounting conservatism in m&a target selection
publisher	Elsevier
publishDate	2021
url	https://doaj.org/article/d93246e76a634141889c57fdb0e61e2e
work_keys_str_mv	AT qingquantang theroleofaccountingconservatisminmatargetselection AT jingjingguo theroleofaccountingconservatisminmatargetselection AT zhihonghuang theroleofaccountingconservatisminmatargetselection AT qingquantang roleofaccountingconservatisminmatargetselection AT jingjingguo roleofaccountingconservatisminmatargetselection AT zhihonghuang roleofaccountingconservatisminmatargetselection
_version_	1718409933054017536

The role of accounting conservatism in M&A target selection

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