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Asset recognitions and revaluations accompanying business combinations: Relations to future operating performance
This paper investigates the value relevance of fair value accounting for non-financial tangible and intangible assets in the United States by examining the association of asset recognitions and revaluations accompanying business combinations with future performance. Asset recognitions and revaluations are measured as components of acquisition premia generated in business combinations. Future performance is measured as subsequent-period changes in operating income and changes in operating cash flows. The paper addresses three related research questions. First, to what extent are the components of acquisition premium generated in a business combination associated with the stock price of the combined firm? Second, do the components of acquisition premium reflect changes in future performance, where performance is measured as operating income and operating cash flows? And, third, does the accounting treatment in business combinations result in differential associations of the components of acquisition premium with stock prices or changes in future performance? I find that, consistent with prior research, acquisition premia generated in business combinations are positively associated with the market values of equity of the combined firms. Also, I find acquisition premia generated in purchase transactions are positively associated with changes in future operating income and cash flows from operations. However, acquisition premia generated in pooling transactions are not associated with changes in future performance. I conclude that the value relevance of fair value accounting for non-financial assets depends in part on the context in which it is valued.
Tucker, Karen Jane, "Asset recognitions and revaluations accompanying business combinations: Relations to future operating performance" (2002). Doctoral Dissertations Available from Proquest. AAI3039398.