Payment methods and premiums of cross-border M&A : do national frictions caused by accounting standards differences matter?

Abstract

This study investigates the relation between differences in accounting standards across countries and features (payment methods and premiums) of cross-border mergers and acquisitions (M&A), and how these features change after the mandatory adoption of International Financial Reporting Standards (IFRS) which aims to eliminate accounting standards differences between countries. I examine M&A from 26 countries that mandated IFRS adoption in 2005 and 23 countries that did not adopt IFRS in 2005 for the sample period during 1998-2010, including 12,191 domestic M&A and 3,435 cross-border M&A for the payment method sample, and 9,860 domestic M&A and 3,863 cross-border M&A for the premium sample. I find that before mandatory IFRS adoption, accounting standards differences between countries are negatively related to both the likelihood of all-stock offers and the premiums in cross-border M&A. After mandatory IFRS adoption, the takeover premiums in cross-border M&A increase if both target country and acquirer country adopt IFRS at the same time; however, there are no noticeable changes in the likelihood of all-stock offers. Overall, my findings suggest that information asymmetry arising from cross-country accounting standards differences plays an important role in cross-border M&A.

Date of Award	2014
Original language	English
Awarding Institution	The Hong Kong University of Science and Technology