Pooling or Purchase: A Merger Mystery

20 Pages Posted: 26 Nov 2012

See all articles by John R. Walter

John R. Walter

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 1999

Abstract

Public merger announcements often state which type of merger accounting, pooling or purchase, has been employed. The choice can strongly influence accounting results. For example, reported earnings are often higher under pooling than purchase accounting. Yet empirical analysis indicates that the higher earnings reports do not fool investors. Why then do acquisitive managers display a preference for pooling, especially considering its high cost? Here is a mystery to be solved. U.S. accounting standards may soon be changed to eliminate pooling as an option. Still, any change should be approached cautiously since there is reason to suspect that real managerial benefits underlie the pooling preference.

Suggested Citation

Walter, John R., Pooling or Purchase: A Merger Mystery (1999). FRB Richmond Economic Quarterly, vol. 85, no. 1, Winter 1999, pp. 27-46, Available at SSRN: https://ssrn.com/abstract=2129908

John R. Walter (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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