An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Michael D. Kimbrough
Harvard Business School

Abstract: Statement of Financial Accounting Standards 141 (SFAS 141)’s requirement that an acquirer in a merger or acquisition estimate the fair value of the target’s separately identifiable assets and liabilities (including R&D capital) provides a rare occasion where estimated fair values of U.S. firms’ R&D capital are publicly disclosed. I find that the degree to which a target’s pre-merger announcement share price reflects the estimated fair value of its R&D capital is increasing in the amount of R&D-related intangibles captured in the target’s pre-merger announcement balance sheets (consistent with the notion that financial statement recognition increases investors’ appreciation of the value of R&D assets)and in the number of analysts covering the target prior to the merger announcement (consistent with the private information search of analysts facilitating the incorporation of the value of R&D capital in stock prices).

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