Profitability of Corporate Acquisitions and the Acquisition Premium

This study examines whether corporate acquisitions create synergistic gains in the form of post-acquisition abnormal operating performance and whether the acquisition premium is associated with post-acquisition operating performance. By disentangling the purchase accounting effect, I propose an unbiased cash flow performance measure to be used consistently over the pre- and post-acquisition periods. Using the unbiased performance measure and difference-in-difference approach, I reconcile the conflicting results from prior studies (Healy, Palepu, and Ruback, 1992; Ghosh, 2001) and document evidence that the merged firms show an increase in post-acquisition operating cash flow performance in comparison with the control firms matched by pre-acquisition performance. I also find that the size of goodwill varies directly with post-acquisition operating performance, suggesting that acquiring firms which pay higher acquisition premium experience a higher cash flow return following the corporate acquisition.

Author

• Moon, Joon Seok

Language

• en

Keyword

• M&A
• Acquisition premium
• Synergy
• Goodwill
• Purchase accounting
• Operating performance

Date created

• 2019

Type of Work

• Dissertation

License

• All rights reserved

Rights statement

• In Copyright

GW Unit

• Accountancy

Degree

• Ph.D.

Advisor

• Kang, Sok-Hyon

Committee Member(s)

• Baber, William R
• Rozenbaum, Oded
• Xue, Yanfeng

Persistent URL

•  https://scholarspace.library.gwu.edu/etd/ft848r194