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Regulatory comment letters in mergers and acquisitions

Subject

Accounting, Accounting

Publishing details

Social Sciences Research Network

Authors / Editors

Zhang J; Bilinski P; Raonic I; Ryans J

Publication Year

2020

Abstract

We examine the importance of enforcing acquisition disclosure regulations by describing Chinese comment letters on acquisition filings. Acquisition disclosures intervention associates with lower bidder announcement returns, indicating that the regulator requires disclosure enhancements for deals that are more value-destroying for the acquirer’s shareholders. Content analysis reveals that these lower announcement returns associate with acquisition-related disclosure issues raised by the regulator, rather than general accounting and governance issues. Regulator intervention in acquisition disclosures are also associated with a lower probability of the deal closing, and if the deal does close, lower post-deal profitability and a greater chance of goodwill impairment. Having political connections limits regulatory intervention to lower-quality deals compared to non-connected firms.

Keywords

comment letters; M&A; regulatory monitoring; monitoring mechanism

Series

Social Sciences Research Network