Loading...
Title: Business Combinations under Common Control

Business Combinations under Common Control

Practice, Determinants, and Earnings Quality

by Christian Rave (Author)
©2022 Thesis 296 Pages
Law, Economics & Management
Series: Münsteraner Schriften zur Internationalen Unternehmensrechnung, Volume 22

Summary

IFRS do not specify how to account for business combinations under common control (BCUCC). This study examines the practice, determinants, and earnings quality of different accounting methods used for BCUCC. A descriptive analysis presents the accounting and disclosure practice. Based on the identified accounting methods (acquisition method and book value method), an empirical analysis sheds light on determinants that drive the accounting method choice. Moreover, the consequences of the accounting method choices are investigated with respect to the extent to which companies can manage or even manipulate earnings. Findings of this study have important implications for the IASB’s research project on BCUCC, users and preparers of financial statements, auditors, and enforcement institutions.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author
  • About the book
  • This eBook can be cited
  • Preface
  • Acknowledgement
  • Contents overview
  • Contents
  • List of figures
  • List of tables
  • List of abbreviations
  • List of symbols
  • 1 Introduction
  • 1.1 Research questions and objectives
  • 1.2 Scientific positioning
  • 1.3 Outline of the study
  • 2 Conceptual foundation
  • 2.1 Characteristics of BCUCC
  • 2.1.1 BCUCC according to IFRS 3.2(c)
  • 2.1.2 BCUCC as a related party transaction according to IAS 24
  • 2.1.3 Corporate reorganizations and BCUCC
  • 2.2 Motives for BCUCC
  • 2.3 Structuring of BCUCC
  • 2.4 Accounting for BCUCC
  • 2.4.1 Objective and users of consolidated and subgroup financial statements
  • 2.4.2 Accounting method
  • 2.4.2.1 Application of IAS 8
  • 2.4.2.2 Acquisition method
  • 2.4.2.3 Book value method
  • 2.4.2.4 Further approaches
  • 2.4.3 Disclosures about BCUCC
  • 2.4.4 IASB project for BCUCC accounting
  • 2.5 Summary
  • 3 State of research
  • 3.1 Research on BCUCC
  • 3.1.1 Normative research
  • 3.1.2 Empirical research
  • 3.2 Research on business combinations between third parties
  • 3.2.1 Determinants of accounting method choices
  • 3.2.2 Earnings quality
  • 3.3 Summary and research gap
  • 4 Theory and hypotheses development
  • 4.1 Theoretical foundation
  • 4.1.1 Agency theory
  • 4.1.2 Positive accounting theory
  • 4.1.3 Stakeholder theory
  • 4.1.4 Institutional theory
  • 4.1.5 Theoretical framework
  • 4.2 Hypotheses development
  • 4.2.1 BCUCC disclosures
  • 4.2.2 Determinants of BCUCC accounting method choices
  • 4.2.3 Earnings quality of BCUCC accounting methods
  • 4.2.4 Summary of hypotheses
  • 5 BCUCC accounting and disclosure practice
  • 5.1 Research design
  • 5.1.1 Content analysis
  • 5.1.1.1 Fundamentals
  • 5.1.1.2 Development of the disclosure index
  • 5.1.1.3 Weighting of the disclosure index
  • 5.1.2 Sample
  • 5.2 Results
  • 5.2.1 Presentation and quantity of BCUCC disclosures
  • 5.2.2 Disclosure score
  • 5.2.3 Information about the business combination
  • 5.2.4 Accounting treatment
  • 5.3 Discussion
  • 6 Determinants of BCUCC accounting method choices
  • 6.1 Research design
  • 6.1.1 Logistic regression model
  • 6.1.2 Variables
  • 6.1.3 Sample adjustments
  • 6.2 Results
  • 6.2.1 Descriptive statistics
  • 6.2.2 Correlation analysis
  • 6.2.3 Multivariate analyses
  • 6.2.4 Sensitivity analyses and robustness tests
  • 6.3 Discussion
  • 7 Earnings quality of BCUCC accounting methods
  • 7.1 Research design
  • 7.1.1 OLS regression model
  • 7.1.2 Variables
  • 7.1.3 Sample adjustments
  • 7.2 Results
  • 7.2.1 Descriptive statistics
  • 7.2.2 Correlation analysis
  • 7.2.3 Multivariate analyses
  • 7.2.4 Sensitivity analyses and robustness tests
  • 7.3 Discussion
  • 8 Conclusions
  • 8.1 Main findings and implications
  • 8.2 Limitations and outlook
  • Appendix
  • List of cited annual reports
  • List of cited laws, regulations, standards, and guidance materials
  • Bibliography
  • Series Index

←X | XI→

Contents

List of figures

List of tables

List of abbreviations

List of symbols

1 Introduction

1.1 Research questions and objectives

1.2 Scientific positioning

1.3 Outline of the study

2 Conceptual foundation

2.1 Characteristics of BCUCC

2.1.1 BCUCC according to IFRS 3.2(c)

2.1.2 BCUCC as a related party transaction according to IAS 24

2.1.3 Corporate reorganizations and BCUCC

2.2 Motives for BCUCC

2.3 Structuring of BCUCC

2.4 Accounting for BCUCC

2.4.1 Objective and users of consolidated and subgroup financial statements

2.4.2 Accounting method

2.4.2.1 Application of IAS 8

2.4.2.2 Acquisition method

2.4.2.3 Book value method

2.4.2.4 Further approaches

2.4.3 Disclosures about BCUCC

2.4.4 IASB project for BCUCC accounting

2.5 Summary

3 State of research

3.1 Research on BCUCC

3.1.1 Normative research

3.1.2 Empirical research

←XI | XII→

3.2 Research on business combinations between third parties

3.2.1 Determinants of accounting method choices

3.2.2 Earnings quality

3.3 Summary and research gap

4 Theory and hypotheses development

4.1 Theoretical foundation

4.1.1 Agency theory

4.1.2 Positive accounting theory

4.1.3 Stakeholder theory

4.1.4 Institutional theory

4.1.5 Theoretical framework

4.2 Hypotheses development

4.2.1 BCUCC disclosures

4.2.2 Determinants of BCUCC accounting method choices

4.2.3 Earnings quality of BCUCC accounting methods

4.2.4 Summary of hypotheses

5 BCUCC accounting and disclosure practice

5.1 Research design

5.1.1 Content analysis

5.1.1.1 Fundamentals

5.1.1.2 Development of the disclosure index

5.1.1.3 Weighting of the disclosure index

5.1.2 Sample

5.2 Results

5.2.1 Presentation and quantity of BCUCC disclosures

5.2.2 Disclosure score

5.2.3 Information about the business combination

5.2.4 Accounting treatment

5.3 Discussion

6 Determinants of BCUCC accounting method choices

6.1 Research design

6.1.1 Logistic regression model

←XII | XIII→

6.1.2 Variables

6.1.3 Sample adjustments

6.2 Results

6.2.1 Descriptive statistics

6.2.2 Correlation analysis

6.2.3 Multivariate analyses

6.2.4 Sensitivity analyses and robustness tests

6.3 Discussion

7 Earnings quality of BCUCC accounting methods

7.1 Research design

7.1.1 OLS regression model

7.1.2 Variables

7.1.3 Sample adjustments

7.2 Results

7.2.1 Descriptive statistics

7.2.2 Correlation analysis

7.2.3 Multivariate analyses

7.2.4 Sensitivity analyses and robustness tests

7.3 Discussion

8 Conclusions

8.1 Main findings and implications

8.2 Limitations and outlook

Appendix

List of cited annual reports

List of cited laws, regulations, standards, and guidance materials

Bibliography

←XIV | XV→

List of figures

Figure 1-1: Research fields of the study

Figure 1-2: Outline of the study

Figure 2-1: Summary of BCUCC characteristics according to IFRS 3.B1

Figure 2-2: Motives for BCUCC

Figure 2-3: Example of a BCUCC

Figure 2-4: Example of BCUCC affecting minority shareholders

Figure 2-5: Example of BCUCC affecting creditors

Figure 2-6: Examples of different BCUCC in advance of an IPO

Figure 2-7: Example of BCUCC in advance of a spin-off

Figure 2-8: Selection of accounting policies according to IAS 8

Figure 2-9: Goodwill resulting from a business combination

Figure 2-10: Summary of the IASB’s preliminary view on the selection of the accounting method for BCUCC

Figure 3-1: Overview of related research

Figure 3-2: Research gap

Figure 4-1: Research approaches following Positive Accounting Theory

Figure 4-2: Overview of stakeholders of an acquirer in BCUCC

Figure 4-3: Theoretical framework

Figure 4-4: Summary of hypotheses according to the theoretical framework

Figure 5-1: Year distribution

Figure 5-2: Country composition

Figure 5-3: Industry composition

Figure 5-4: Accounting method distribution per year

Figure 5-5: Accounting method distribution per country

Figure 5-6: Accounting method distribution per industry

Figure 5-7: Presentation of BCUCC information within the notes

Figure 5-8: Box plot diagram for the total disclosure score

Figure 5-9: Motives for the BCUCC

Figure 5-10: Example of Ipsen S.A. organizational structure pre-BCUCC

Figure 5-11: Example of Ipsen S.A. organizational structure post-BCUCC

Figure 5-12: Ultimate controlling party distribution by accounting method

←XV | XVI→

Figure 5-13: Different types of consideration

Figure 5-14: Financial statements used for the book values

Figure 5-15: Results for the disclosure hypothesis

Figure 6-1: Margins plot for BCUCC accounting method determinants

Figure 6-2: Results for the determinants hypotheses

Figure 7-1: Results for the earnings quality hypotheses

←XVI | XVII→

List of tables

Table 2-1: Illustrative example of the acquisition method for BCUCC at first-time consolidation

Table 2-2: KPI for the acquisition method

Table 2-3: Illustrative example of the book value method for BCUCC at first-time consolidation

Table 2-4: KPI for the book value method

Table 2-5: Summary of the IASB’s preliminary view for BCUCC

Table 2-6: Summary of the acquisition method and book value method

Table 3-1: Normative research on BCUCC

Table 3-2: Empirical research on BCUCC

Details

Pages
296
Year
2022
ISBN (PDF)
9783631877586
ISBN (ePUB)
9783631877593
ISBN (Hardcover)
9783631877456
DOI
10.3726/b19704
Language
German
Publication date
2022 (March)
Keywords
BCUCC M&A Accounting IFRS Accounting methods Accounting choices Mergers Acquisitions
Published
Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2022. 296 S., 36 s/w Abb., 57 Tab.

Biographical notes

Christian Rave (Author)

Christian Rave studied Business Administration at the University of Münster (Germany), Münster University of Applied Science (Germany), and Indian Institute of Management Ahmedabad (India). He worked for a Big Four audit firm and as a research assistant for the Chair of International Accounting at the University of Münster.

Previous

Title: Business Combinations under Common Control