The relationship between accounting quality and post-merger performance

The aim of this study is to explore the relationship between the accounting quality of the target firm and the post-merger performance of the acquirer in a merger and acquisition (M&A) transaction. A dataset of 161 observations involving publicly listed companies from the core countries of the European Union, excluding financial and public administration sectors, was obtained using the Refinitiv Eikon database between 2010 and 2022. The accounting quality of the target company is evaluated using accruals quality as a proxy, based on the data covering six to eight years preceding the M&A deal. Additionally, post-merger performance is assessed through analysis of the acquirer’s stock price return ratio, using data from one month before and after the announcement date. My report finds that a positive relationship and a significant association exist between the two variables, suggesting that higher accounting quality, which typically involves more accurate and transparent financial reporting, is associated with better post-merger performance outcomes. Conversely, negative coefficients are discovered for the size of the acquirer and negotiated deals indicating a potentially adverse effect on post-merger performance. The results of this study align with both the prediction and the findings of previous research conducted in this field.