Electronic Resource
Oxford, UK and Boston, USA
:
Blackwell Publishers Ltd
Journal of business finance & accounting
27 (2000), S. 0
ISSN:
1468-5957
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Economics
Notes:
This paper examines the association between acquisiton-related provision-taking behaviour and post-acquisition performance for a sample of UK firms that undertook large acquisitions between 1989 and 1995. We find evidence that provision-taking was associated with declining accounting and market-adjusted stock price performance over the three-year period following the fiscal year of the acquisition. This relationship exists after controlling for a variety of factors, including method of payment in the acquisition and post-acquisition cash flow performance. By implication, post-acquisition abnormal returns appear to have been predictable based on publicly available information about the magnitude of the provisions. These findings are consistent with the following scenario: The management of the high provisioners used the provisions to insulate accounting earnings from the effects of declining cash flows. The market belatedly reacted to these firms' declining fortunes when net income was no longer inflated by provision reversals.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/1468-5957.00354
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