This study examines internal control weaknesses (ICWs) reported under Sarbanes-Oxley (SOX) Section 302 in the context of mergers and acquisitions. We predict that problems in an acquirer's internal control environment have adverse operational implications for acquisition performance. We argue that acquirers with low-quality internal information needed to select profitable acquisitions will make poorer acquisition decisions. We also argue that ICWs impede effective monitoring and are likely to hinder integration tasks that are important to acquisition profitability. We find that ICWs disclosed prior to an acquisition announcement predict significantly lower post-acquisition operating performance and abnormal stock returns. Poorer post-acquisition performance is concentrated in ICWs that are expected to impede acquisition activities (i.e., forecasting/valuation, monitoring, and integration). Our findings contribute to the literature linking ineffective internal control over financial reporting to negative operational outcomes. We also contribute to the SOX cost-benefit debate by documenting a previously unidentified benefit of ICW disclosures.

No abstract

We compare 20 years of data from Thompson Financial SDC Platinum (SDC)'s Mergers and Acquisitions database with a hand‐collected database, providing evidence on the completeness and accuracy of SDC data across time. We find that our hand‐collected data is generally more accurate than SDC, but SDC's accuracy and coverage improves over time. Our investigation of discrepancies between the databases finds that SDC is more prone to errors on smaller, high book‐to‐market acquirers with weak announcement period market responses. Preliminary analyses suggest that this potential bias is not significant, but could affect inferences when examining smaller, high book‐to‐market firms.

No abstract

This study investigates whether measures of reflective cognitive capacity can differentiate which participants are more or less likely to benefit from feedback intervention. The results from four separate experiments of feedback effects are reported. In each experimental task, participants had to override a specific cognitive bias in order to improve their performance post feedback. Across all four experiments, the results consistently show that measures of reflective cognitive capacity reasonably partitioned participants into two groups: those that were more likely, versus those that were less likely, to benefit from feedback intervention. Most notably, the fourth experiment replicates a study recently published in Behavioral Research in Accounting (Buchheit, Dalton, Downen, and Pippin 2012) and demonstrates that the study's primary finding was not generalizable to all participants. We recommend that future accounting studies examining learning and feedback effects include measures of reflective cognitive capacity, such as the Need for Cognition scale and the Cognitive Reflection Test. Data Availability: Please contact the first author.