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Information dissemination on intellectual capital in mergers and acquisitions: purchase price allocations, press releases and business press

2014; Taylor & Francis; Volume: 44; Issue: 3 Linguagem: Inglês

10.1080/00014788.2014.883915

2159-4260

Christian Ott, Ulrike Schmidt, Thomas W. Guenther,

Corporate Finance and Governance

AbstractIn order to reduce information asymmetries in relation to a firm's current decisions and long-term strategy, firms must consistently provide information to stakeholders. This paper investigates intellectual capital (IC) information disclosed in mergers and acquisitions (M&A) provided through three different disclosure channels (voluntary press releases, related newspaper articles and subsequent mandatory corporate disclosures in the notes to the financial statements). For a sample of 215 randomly selected US and European M&As, we analyse 215 press releases, 1025 newspaper articles and 215 purchase price allocations. Our findings suggest that IC disclosure in press releases is not perceived as informative and qualitative forward-looking IC information in voluntary corporate disclosures appears to lack credibility. Moreover, we empirically demonstrate interdependencies across the three disclosure channels. The business press seems to filter IC information provided in press releases. The amount of IC disclosure in the notes to the financial statements is positively associated with prior IC disclosure in newspaper articles, but negatively associated with IC disclosure in press releases. The managements of acquirer firms appear to pay attention to news coverage and public opinion. However, both voluntary and mandatory corporate disclosures appear to substitute rather than complement each other.Keywords: corporate information environmentdisclosuremergers and acquisitionsintellectual capitalcomputer-assisted content analysis AcknowledgementsThe authors would like to thank the editor and the reviewer of Accounting and Business Review and participants of the 6th Interdisciplinary Workshop on Intangibles, IC & Extra-Financial Information in Catania, Italy for fruitful comments on previous versions of the paper.Notes1. While accounting standards generally permit the recognition of acquired IC (SFAS 142.9, IAS 38.25–43), they are more restrictive with regard to the initial recognition of internally generated IC (SFAS 142.10, IAS 38.51–67). In particular, problems relating to the identification (e.g. the probability of future economic benefits) and the reliable measurement of internally generated IC (e.g. lack of active markets) raise concerns (SFAS 142.10, IAS 38.51).2. The terms 'mergers & acquisitions' and 'business combinations' are used interchangeably in this paper.3. The revised accounting standards SFAS 141 R and IFRS 3 R use the term 'acquisition method' instead of the term 'purchase method'. Since the sample includes only business combinations accounted for under the original accounting standards, SFAS 141 or IFRS 3, respectively, the terms 'purchase method' and 'purchase price allocation' are used throughout this paper.4. The accounting for business combinations is discussed based on the US accounting standard SFAS 141, issued in July 2001, and the matching international accounting standards IFRS 3, issued in March 2004.5. According to the North American Audit Bureau of Circulation, The Wall Street Journal and The New York Times had average daily circulations of 2.0 and 1.1 million paid copies from 1 July 2001 to 31 December 2008, respectively.6. Our sample of European newspapers includes influential daily business newspapers with high circulation from the UK, France and Germany. According to the British Audit Bureau of Circulation, The Financial Times and Wall Street Journal Europe had average daily circulations of 0.44 and 0.08 million paid copies from 1 January 2005 to 31 December 2008, respectively. According to the French equivalent, Office de Justification des Tirages, La Tribune had an average daily circulation of 0.08 million paid copies from 1 January 2005 to 31 December 2008. According to the German equivalent, Informationsgemeinschaft zur Feststellung der Verbreitung von Werbeträgern, Handelsblatt and Financial Times Deutschland had average daily circulations of 0.14 and 0.10 million paid copies from 1 January 2005 to 31 December 2008, respectively. Moreover, German financial experts rank Handelsblatt and Financial Times Deutschland first and second as important sources of financial information, according to a study on the financial community by iq media marketing in 2006 and 2008.7. The empirical results are robust in terms of considering only the newspaper articles between one day before and one day after the announcement date.8. The choice of self-constructed disclosure indices received criticism as well as support in the literature (Beyer et al. Citation2010). The construction of such indices involves subjective judgement by the researcher. In order to facilitate replication and generalisation, we refer to previous literature to identify IC-related items and reveal the category system of items in Appendix 1.9. The translation of IC items was undertaken using a combination of methods as advocated by Harpaz (Citation2004). First, the second named author translated all English terms of the code book into German and French, including synonyms and idioms. Second, the first named author reproduced the translation. Both authors are proficient in the three languages: English, German and French. After the individual translating process, both authors discussed their results and completed the translation of the IC items. To ensure accuracy, we pretested and extended our translated coding scheme using a pilot sample of five companies (Krippendorff Citation2004, García-Meca and Martínez Citation2007) (cf. Bozzolan et al. Citation2003).10. To address concerns regarding the consideration of repetitions in the content analysis, we analyse the total sample excluding repetitions. Unreported results are directionally consistent and significant with the exception of the association between IC disclosure in press releases and in newspaper articles.11. To address concerns regarding the inclusion of M&A transactions with no press coverage, we analyse a sub-sample of 170 M&A transactions for which at least one newspaper article was available. The unreported results for this sub-sample are directionally consistent, albeit slightly less significant.12. The cumulative abnormal return is the sum of stock returns in excess of the estimated stock returns over a specific time period. We calculate the estimated return using the market model (e.g. Fama et al. Citation1969, MacKinlay Citation1997, McWilliams and Siegel Citation1997), which is a rather robust estimation procedure compared to other more complex alternatives used in event studies (Armitage Citation1995, Cable and Holland Citation1999).13. Please refer to Appendix 2 for more detailed information on the definition and measurement of control variables.14. The empirical results are robust to the inclusion of legal origin (La Porta et al. Citation2008) instead of country dummies as control variables.15. Nine M&A transactions were announced before 2005, 58 in 2005, 57 in 2006, 63 in 2007 and 28 in 2008.