See-through mergers and acquisitions

In business, company mergers and acquisitions (M&As) have weighty implications for companies and stakeholders alike. A study in the International Journal of Accounting, Auditing and Performance Evaluation has looked at M&As in the years following the global financial crisis (GFC) with a specific focus on Italy’s generally slow recovery from this crisis and teh the response of family-owned businesses, in particular. The team of Cristina Florio and Francesca Rossignoli of the Department of Management at the University of Verona, have looked at whether Italian companies were bolstered by disclosure standards in the aftermath of the GFC compared to pre-crisis levels.

M&As are, generally speaking, a strategic manoeuvre involving substantial investments and inherent risks. Disclosures surrounding such major business transactions are vital to transparency and understanding among shareholders, investors, lenders, and other stakeholders regarding the long-term impact on the acquiring company’s performance and the impact on those employed or investing in the company that is subsumed.

Before the GFC of 2007-2008, considered the biggest international economic downturn since the Great Depression of the 1930s, evidence suggested that those involved in M&As were often failing to meeting the mandatory disclosure requirements of acquiring companies. However, the aftermath of the GFC, which was marked by unprecedented disruption to financial markets and subsequent heightened uncertainty, led to serious problems for companies seeking capital afterwards.

Florio and Rossignoli have looked at how companies responded by improving their M&A disclosure practices. This, they suggest, was an attempt to mitigate against investor wariness and to help them secure funding. As such, the team found that there was a significant improvement in M&A disclosures after the GFC. This was particularly noticeable among family-owned businesses that were seeking to acquire other business. This improvement in disclosure information shows that companies were trying to improve investor trust and so help them gain access to capital in the wake of the GFC.

From the perspective of regulators, these improvements in disclosures will be welcomed as a sign of companies better complying with mandatory requirements, which is important in turbulent times and bodes well for how companies might respond in a future crisis.

The team offers a precautionary note, however. They explain that there likely remain potential risks around opportunistic behaviour, where an acquirer might only selectively disclose information concerning goodwill recognition. The team suggests that investors should be vigilant and diligent in examining M&A disclosures in order to spot any underhand behaviour on the part of an acquirer.

Florio, C. and Rossignoli, F. (2024) ‘M&A disclosure post-global financial crisis: the influence of family ownership’, Int. J. Accounting, Auditing and Performance Evaluation, Vol. 20, Nos. 3/4, pp.291–318.