The Role of Non-U.S. Firms’ Financial Reporting in International Mergers & Acquisitions

Hollis Ashbaugh
University of Wisconsin–Madison

Paquita Y. Davis-Friday
University of Notre Dame

Abstract: Theoretical research indicates that asymmetric information is a barrier to the completion of firms’ mergers and acquisitions (M&A). One role of financial reporting is to reduce asymmetric information by disseminating information about the value of firms’ resources. This study investigates whether non-U.S. firms’ financial reporting standards are associated with the firms being targets in completed M&A transactions. We find that non-U.S. firms’ use of International Accounting Standards (IAS) or U.S. Generally Accepted Accounting Principles (U.S. GAAP) is positively associated with the likelihood of such firms being targets in M&A. We also find that the likelihood of a non-U.S. firm being a target in M&A is positively associated with the external monitoring supplied by its choice of auditor. Our findings are robust to controlling for the mandatory information flows associated with country-specific M&A reporting requirements. These findings provide evidence that is consistent with firms’ financial reporting strategies having an influence on the control of corporate resources in the global market.

Back to Program