I examine the role of preparer information gathering and processing constraints in fair value measurement. Using two business combination samples, I investigate whether acquirers adjust the initial fair value measurements of identifiable assets and liabilities during the one-year measurement period permitted by FASB Statement 141(R). Empirical proxies for preparers' information gathering and processing costs explain variation in the incidence and magnitude of measurement period adjustments (MPAs). I classify abnormally large MPAs that allow firms to exceed the consensus analyst forecast as suspect adjustments. Suspect adjustments exhibit little association with earnings management incentives and no association with future goodwill impairment. Overall, the results suggest that acquirers use the measurement period when there are concerns about the quality or availability of information, consistent with the FASB's intentions.
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Research Article|
January 14 2021
Time to get it Right: An Examination of Post-Acquisition Fair Value Adjustments
Matthew Kubic
Matthew Kubic
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Journal of Financial Reporting 6666-6666.JFR-2018-0022.
Article history
Received:
September 14 2018
Accepted:
October 01 2020
Citation
Matthew Kubic; Time to get it Right: An Examination of Post-Acquisition Fair Value Adjustments. Journal of Financial Reporting 2021; doi: https://doi.org/10.2308/JFR-2018-0022
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