Anecdotal and experimental evidence suggests that managers may prefer pooling of interests to purchase accounting because of their concern for missing analysts?earnings forecasts. I attempt to find empirical evidence for this concern, and hypothesize that, ceteris paribus, the more quarters the acquiring firm's actual earnings fall below analysts?forecasts prior to a merger announcement, the more likely it chooses the pooling of interests method. I test this hypothesis using a sample of 84 transactions that choose pooling of interests accounting and 74 transactions that choose purchase accounting from 1994 through 1995. Inconsistent with my hypothesis, I find no association between managers?merger accounting choices and the number of quarters with negative analyst forecast error before...[ Read more ]

Anecdotal and experimental evidence suggests that managers may prefer pooling of interests to purchase accounting because of their concern for missing analysts?earnings forecasts. I attempt to find empirical evidence for this concern, and hypothesize that, ceteris paribus, the more quarters the acquiring firm's actual earnings fall below analysts?forecasts prior to a merger announcement, the more likely it chooses the pooling of interests method. I test this hypothesis using a sample of 84 transactions that choose pooling of interests accounting and 74 transactions that choose purchase accounting from 1994 through 1995. Inconsistent with my hypothesis, I find no association between managers?merger accounting choices and the number of quarters with negative analyst forecast error before merger announcements.