This study explores causes and effects of business combinations disclosure level. Investigating the association between disclosure level on business combination and acquirers' future performance, I find that acquirers' future performance as measured by the change in ROA and by abnormal stock returns increases with abnormal levels of disclosure on business combinations. Investigating the determinants of business combination disclosure, I find that the disclosure level on business combinations decreases with abnormal levels of the purchase price allocated to goodwill. Both results provide evidence consistent with disclosure theory and suggest that acquirers tend to provide less forthcoming disclosure on less favorable acquisitions (“bad news”). I also provide evidence consistent with investors failing to immediately incorporate the information content of business combination disclosure level into their information set and evidence that investors are quicker to react to firms with negative abnormal disclosure.

This study investigates the impact of CEO compensation structure on postacquisition purchase price allocation, an accounting procedure that involves fair value estimation of various assets and liabilities. We find that CEOs whose compensation packages rely more on earnings-based bonuses are more likely to overallocate the purchase price to goodwill, the largest asset recorded postacquisition. Because goodwill is not amortized, the overallocation likely increases post-acquisition earnings and bonuses. We also find that, when the acquirer's CEO bonus plan includes performance measures that are not affected, or are less affected, by the overstatement of goodwill, such as cash flows, sales, or earnings growth, the overallocation to goodwill motivated by bonus plans diminishes.

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W orking capital is an important indicator of firm operational efficiency. All else being equal, lower levels signal greater efficiency. Managers are thus likely to be motivated to report lower levels of working capital at times of greater external attention. We find that working capital levels decrease in the fourth fiscal quarter significantly more than expected, conditional on seasonal changes in economic activity. The decrease subsequently reverses in the following first fiscal quarter. Evidence indicates that firms manage down year-end working capital through transactions that increase year-end operating cash flow and that firms spread this activity over all working capital accounts. Finally, the temporary decrease in year-end working capital is correlated with compensation benchmarks and analysts' annual cash flow forecasts. The temporary drop is also more pronounced for firms with industry dominance.

This study investigates whether firm-specific information about targets improves acquisition efficiency. We define acquisition efficiency as the total surplus generated by an acquisition and measure it as the difference in the value of the merged firm and the sum of the two firms operating separately. We find a positive association between target firm-specific information and acquisition efficiency that is driven mainly by diversifying acquisitions. Additional evidence suggests that both the likelihood of the withdrawal of an announced acquisition and the likelihood of a future divestiture of a target decrease with target firm-specific information. Taken together, our findings suggest that the availability of this information improves merger and acquisitions efficiency.