Reuters: Mergers News: Bungled mergers could lead to restatements -study

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Bungled mergers could lead to restatements -study Jun 7th 2012, 18:50 NEW YORK, June 7 | Thu Jun 7, 2012 2:50pm EDT NEW YORK, June 7 (Reuters) - Merger-and-acquisition decisions that are poorly received in the stock market could put pressure on managers to misreport results, leading to accounting restatements, a new study shows. About 18 percent of companies whose deals got a thumbs-down from investors later had to restate results, compared with 11 to 12 percent of acquiring companies whose deals were not similarly panned, according to the study of about 2,300 U.S. public companies that made acquisitions from 1996 through 2007. "When a negative market reaction suggests that a firm's management made a poor M&A decision, there will be greater pressure on management to produce positive operating performance," said the study in the American Accounting Association's journal, The Accounting Review. That could put pressure on managers to change financial reports to boost stock performance, justify an acquisition and save their jobs, the study found. "When you see that there's a possibility of heightened pressure on a manager, you would want to evaluate their earnings quality more carefully," Daniel Bens, a University of Arizona accounting professor and study co-author, said in an interview. "They are under a lot of pressure to keep their jobs." Among the companies studied was Sunrise Assisted Living, whose shares sank 4 percent shortly after announcing an acquisition in 2002, according to a separate slide presentation prepared by Bens. The U.S. Securities and Exchange Commission later launched an investigation and charged the company with accounting fraud for the years 2003 through 2005. Sunrise, which had changed its name to Sunrise Senior Living, settled without admitting or denying wrongdoing. Shares of outsourcing company BISYS Group fell nearly 4 percent after it announced an acquisition in June 2000, according to the slide presentation. It later restated results for multiple years and settled SEC charges of improper accounting without admitting or denying wrongdoing. BISYS was bought by Citigroup in 2007. Other study co-authors were Theodore Goodman and Monica Neamtiu, also University of Arizona accounting professors. Link this Share this Digg this Email Reprints

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