Costs and benefits of internal control audits: evidence from M&A transactions
| Autor: | Sarah E. McVay, David P. Weber, Todd D. Kravet |
|---|---|
| Rok vydání: | 2018 |
| Předmět: |
050208 finance
Scrutiny Cost–benefit analysis business.industry 05 social sciences Accounting 050201 accounting Audit General Business Management and Accounting humanities Corporate finance 0502 economics and business Goodwill Business health care economics and organizations Stock (geology) Financial statement Public finance |
| Zdroj: | Review of Accounting Studies. 23:1389-1423 |
| ISSN: | 1573-7136 1380-6653 |
| DOI: | 10.1007/s11142-018-9468-9 |
| Popis: | To inform the debate on the merits of internal control audits, we examine managers’ decisions to temporarily exempt newly acquired businesses from Section 404 of the Sarbanes-Oxley Act. We document that managers are more likely to elect the exemption when expected compliance costs are higher, such as when acquisitions are larger and occur later in the year. We find only modest evidence that managers use the exemption to avoid scrutiny of value-destroying deals. Exemption use, however, is associated with negative post-acquisition outcomes, including lower return-on-assets and higher likelihoods of goodwill impairments and financial statement restatements. These results comport with compliance providing benefits by facilitating timely identification and correction of control problems in the newly acquired business. Finally, we document negative abnormal stock returns at the time exemption use is announced and over the subsequent 3 years, suggesting that investors view exemption use negatively and that their initial price reactions are incomplete. |
| Databáze: | OpenAIRE |
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