Financial Reporting Quality And Acquisition Profitability: Evidence From Korea

Abstract

In this paper, we examine the association between financial reporting quality and acquisition profitability in a sample of 282 acquisitions in South Korea between 2001 and 2011. Using the accruals quality measure developed by Dechow and Dichev (2002) and McNichols (2002), we find that firms with high-quality financial reporting make more profitable acquisitions, as measured by the bidder's announcement returns. In addition, we find that the importance of financial reporting quality increases in firms with poor information environments.