The Political Economy of Accountability for Mergers and Acquisitions
This chapter provides an insight into the political forces that determine accounting rules through a detailed examination of how accounting rules for corporate mergers and acquisitions were determined. The M&A industry is a multi-trillion dollar sector where evidence indicates that acquirers often overpay for targets, thus destroying value. Effective accounting rules for M&A can address these concerns. The chapter documents how investment banks – that depend on high M&A deal values – and certain serial corporate acquirers were successful in structuring accounting rules in ways that preserved their economic interests while potentially compromising accountability for overpayment in M&A. The chapter then provides evidence on the costs of these accounting rules, documenting how, in some cases, firms delay by over two years the recognition of M&A-related losses in their income statements. The chapter is a window into the kind of narrow special-interest capture that can occur in thin political markets.
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