The effect of missing earnings forecasts on the choice of accounting for business combinations

Abstract

Anecdotal and experimental evidence suggests that managers may prefer pooling of interests to purchase accounting because of their concern for missing analysts?earnings forecasts. I attempt to find empirical evidence for this concern, and hypothesize that, ceteris paribus, the more quarters the acquiring firm's actual earnings fall below analysts?forecasts prior to a merger announcement, the more likely it chooses the pooling of interests method. I test this hypothesis using a sample of 84 transactions that choose pooling of interests accounting and 74 transactions that choose purchase accounting from 1994 through 1995. Inconsistent with my hypothesis, I find no association between managers?merger accounting choices and the number of quarters with negative analyst forecast error before merger announcements.

Date of Award	2000
Original language	English
Awarding Institution	The Hong Kong University of Science and Technology