Mergers and Acquisitions Accounting and the Diversification Discount

Cláudia Custódio

Research output: Contribution to journalArticle

26 Citations (Scopus)

Abstract

q-based measures of the diversification discount are biased upward by mergers and acquisitions and its accounting implications. Under purchase accounting, acquired assets are reported at their transaction value, which typically exceeds the target's pre-merger book value. Thus, measured q tends to be lower for the merged firm than for the portfolio of pre-merger entities. Because conglomerates are more acquisitive than focused firms, their q tends to be lower. To mitigate this bias, I subtract goodwill from the book value of assets and a substantial part of the diversification discount is eliminated. Market-to-sales-based measures do not have this bias.

Original languageEnglish (US)
Pages (from-to)219-240
Number of pages22
JournalJournal of Finance
Volume69
Issue number1
DOIs
StatePublished - Feb 2014

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Diversification discount
Mergers
Book value
Assets
Mergers and acquisitions
Purchase
Goodwill
Conglomerate

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Mergers and Acquisitions Accounting and the Diversification Discount. / Custódio, Cláudia.

In: Journal of Finance, Vol. 69, No. 1, 02.2014, p. 219-240.

Research output: Contribution to journalArticle

Custódio, Cláudia. / Mergers and Acquisitions Accounting and the Diversification Discount. In: Journal of Finance. 2014 ; Vol. 69, No. 1. pp. 219-240.
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