The Role of Similar Accounting Standards in Cross-Border Mergers and Acquisitions

Publication Type:
Journal Article
Citation:
Contemporary Accounting Research, 2016, 33 (3), pp. 1298 - 1330
Issue Date:
2016-01-01
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© CAAA This study investigates whether differences in accounting standards across countries create information costs that inhibit firms from investing in foreign markets. Using the frequency and dollar magnitude of cross-border mergers and acquisitions (M&As) from 32 countries over the period 1998–2004, we find that the aggregate volume of M&A activity across country pairs is larger for pairs of countries with similar Generally Accepted Accounting Principles (GAAP), and that this increased volume of M&A activity is driven by target countries that also have strong enforcement. We also find that the 2005 mandatory adoption of International Financial Reporting Standard (IFRS) attracted more cross-border M&As among IFRS-adopting countries, and that this increase in M&A activity within the IFRS countries is more pronounced for country pairs with low similarity in GAAP in the pre-IFRS adoption period. Overall, our results highlight the role of accounting standards and enforcement in shaping cross-border M&A activity.
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