You are here


The quality of earnings momentum and performance of mergers & acquisitions

Lei Zhu, 2009
Faculty Advisor: Stephen Penman
Print this abtract


This paper provides an accounting explanation for the poor, post-acquisition stock performance of glamour acquirers (high market-to-book ratios). While glamour acquirers show considerable earnings momentum and high market valuations prior to acquisitions, such momentum is not sustainable. Specifically, benchmarked against value acquirers and matching non-acquirers, evidence is consistent with glamour acquirers employing three mechanisms--increasing investments, inflating accruals, and delaying the recognition of core expenses--to temporarily bolster earnings several years prior to acquisitions. In addition, the targets merged with glamour acquirers have higher market-to-book ratios but lower earnings quality than those merged with value acquirers. The poor earnings quality of glamour acquirers then leads to a decline in both operating and stock performance after acquisitions. These results indicate that the underperformance anomaly can be attributed to investors' failure to recognize the poor earnings quality of both glamour acquirers and their targets before acquisitions.

Download Dissertation

Doctoral Program News

Wong wins Deloitte Fellowship

We are proud to announce that Yu Ting (Forester) Wong is one of the recipients of the 2014 Deloitte Foundation Doctoral Fellowship in Accounting.

Read More About Yu Ting >

The PhD Program Congratulates John Yao

PhD student John Yao was a finalist in the 2013 M&SOM (Manufacturing & Service Operations Management) student paper competition.

Read More About John >

Apply Now
Sept 2014

Deadline: 01/05/14

MS Marketing
Deadline: 02/02/14

MS Financial Economics
Deadline: 02/02/14

MS Leadership
Rolling admission

Check Application Status

Once you've submitted your application, you can login and track your status by using the link below.

Check Status