Accounting Choice, Announcement Returns and Operating Performance in Stock-for-Stock Acquisitions

Until 2001, certain stock acquisitions could be accounted for as pooling-of-interests. There were concerns that pooling was associated with earnings fixation and weak corporate governance. I investigate the cross-sectional variation in the purchase-pooling choice and its association with acquisition-related performance. In a sample of 390 stock deals over 1993-1999, I find pooling is associated with earnings fixation and weak governance. CARs around pooling announcements are lower compared with purchase announcements. Pooling acquirers achieve earnings growth, but their revenue growth and operating efficiency decline. The evidence suggests the previously documented inferior performance of stock acquirers is largely contributed by pooling firms