Who is this research for? This research is relevant for business leaders involved in accounting, valuation, auditing, and merger and acquisition decision-making.
Executive Summary
This research from Jonathan E. Shipman and Zac Wiebe at the Sam W. Walton College of Business (William Dillard Department of Accounting) examines whether fair value estimates used in mergers and acquisitions provide decision-useful information about post-merger performance. Using hand-collected purchase price allocation disclosures from nearly 600 U.S. public mergers and acquisitions, the study evaluates whether adjustments from book value to fair value predict future operating cash flows beyond pre-deal book values, goodwill, and other deal characteristics.
The findings suggest that fair value adjustments are, on average, associated with higher post-merger operating cash flows and that analysts and investors incorporate fair value adjustments in their investment decision making. Fair values appear most informative when acquirers have stronger governance, prior acquisition experience, or shared auditors with the target. The study also indicates that fair values assigned to customer- and contract-related intangible assets tend to be more informative than those related to technology or marketing assets.
Action Items for Industry
- Reinforce valuation governance structures: Strengthen governance and oversight around valuation processes, especially in complex or infrequent acquisitions.
- Differentiate among intangible assets when evaluating deals: Customer- and contract-related intangible assets tend to provide clearer signals about future performance than technology- or marketing-related assets, which may require additional scrutiny.
- Treat fair value estimates as decision inputs, not guarantees: While fair value adjustments provide incremental insight, their usefulness varies by deal context and should be evaluated alongside operational and strategic factors.
- Track market interpretation of disclosures: Monitor market reactions to purchase price allocation disclosures to better understand how investors and analysts interpret fair value information.
Quote from the Researcher
“Our evidence shows that fair value estimates in mergers are not just accounting mechanics—they contain meaningful information about future cash flows and are reflected in how investors and analysts update their expectations.”
- Zac Wiebe
Co-Authors & Affiliations
James J. Blann — Georgia Institute of Technology, Scheller College of Business
John L. Campbell — University of Georgia, Terry College of Business
Link to the Original Research
Published in Contemporary Accounting Research, available here.
📩 Interested in learning more? If you’d like additional information about this research or to connect directly with the researchers, please email us at research@walton.uark.edu.
