Daniel A. Bens
Professor of Accounting and Control
Misreporting; Investment; Mergers and Acquisitions; Pressure on Managers
This study examines whether managers alter their financial reporting decisions in the face of investment-related pressure.The authors define investment-related pressure as the increased pressure managers feel to retain their job following an M&A poorly received by the market.The authors hypothesize that managers attempt to assuage pressure by delivering strong performance post-merger, creating incentives for misreporting.The findings indicate that acquirers with more negative M&A announcement returns are more likely to misstate financial statements in the post-investment period and the issuance of misstated financials mitigates this pressure, at least in the near term.This study contributes to the literature on the relation between corporate investing and financial reporting by showing how investment-related pressure leads to misreporting, even in a setting where the costs (e.g., greater probability of detection) are high.The study also has implications for the large body of research that evaluates various consequences of M&As using post-merger performance. Specifically, researchers should be careful to distinguish real from misstated financial performance in the post-investment period.