Abstract
The accounting fraud of Enron and other firms prompted acquirers to be more diligent before investing in companies. The fraud also led to the creation of the Sarbanes–Oxley Act (SOX), which contains provisions that require more due diligence for firms that pursue mergers. We document significant changes in the behaviour and valuation of mergers since SOX. Acquirers rely more heavily on financial and legal advisors, while targets rely more heavily on financial advisors. The total premium (which includes the target's stock price run up) that acquirers pay for targets is significantly lower since SOX. The long-term stock price performance following mergers is more favourable (or less unfavourable) since SOX, regardless of the horizon used to measure long-term stock price performance. Whether the more conservative pursuit of targets by acquirers is voluntary or forced by SOX provisions, acquirer decision making has improved since the accounting fraud.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
