Study Reveals GAAP Plays a Vital Role in Shaping Cross-border Mergers & Acquisitions

Thursday, October 11, 2012 Print Email

As per a study released recently it has been found that accounting related standards is likely to play an important part in the shaping of global acquisitions and mergers. The study which was conducted by the researchers from the University of Arkansas and University of Missouri was carried out to observe the global accounting principles/standards closely in order to determine what discourages entities form chasing growth related opportunities emerging in the foreign countries.

The outcomes of the study were revealed at the annual meeting of the American Accounting Association. The research also took into consideration the international merger and acquisition deals of thirty two countries that were struck from 1998-2004. The study indicated that the mere volume of the merger and acquisition activities were high for nations having comparable GAAP (Generally Accepted Accounting Principles). The researchers also found that the superior acquisition price was typically higher in cases where the concerned nation’s Generally Accepted Accounting Principle was similar to the nation to which the acquirer belonged.

The researchers also discovered that the IFRS that were applied in 2005 resulted in the signing up of additional deals between two countries that adopted International Financial Reporting Standards. The rise in deal activities within the IFRS adopting nations was more different for nations with little similarities in Generally Accepted Accounting Principles during the period when IFRS had not been approved.

The report also revealed that maximum transactions where the accounting principles and standards where similar were struck between the United States and United Kingdom based entities and Canadian entities. As many as one thousand nine hundred and eighty deals were signed, which further generated around one hundred and seventy four billion dollars in terms of value among the United States and the United Kingdom from 1998-2004. Around the same time, as many as one thousand nine hundred and thirty five deals were signed between the United States and Canada that generated as much as hundred and six billion dollars in terms of value.

The researchers wrapped up by stating that the findings of the study are very much in tune with the thought that similar Generally Accepted Accounting Principles minimizes information related cost due to which the contention between deal bidders rises and further forces the targeted shareholders to come to the forefront with great gains.

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