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An International Meeting of American Accounting
Association
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A Discourse on the Association of Accounting Fraud and Acquisitions |
Carmelita Troy
Naval Postgraduate School
Omer Boztas
Naval Postgraduate School
David E. Miller
Naval Postgraduate School
Abstract: In this paper we address the relationship between acquisitions and accounting fraud. Prior literature has shown that acquisitions generally are good for target companies’ shareholders, but not for acquiring companies and there is evidence that many, if not most, acquisitions are later diversified. Since an acquisition strategy can destroy one or both of the firms’ value and ultimately harm investors, we attempt to determine if accounting fraud can historically be linked to greater acquisition activity in comparison to no-fraud companies. Looking at a sample of firms subject to SEC enforcement action for accounting fraud that started between 1998 and 2004, we find that the fraud firms were significantly more active in acquiring other firms than were the firms in the no fraud matched sample and that fraud firms are more likely to use stock to finance the acquisition than were the no-fraud firms.