The identification of a business combination and the designation of which firm is the acquirer and which is the target, the acquiree, are important from an accounting perspective. IFRS and US-GAAP determine the acquirer in business combinations by comparing the control power that a firm has over another firm. The standards implicitly assume that the ability to control an acquiree is the best approximation of economic rationales for a business combination. This study presumes that economic rationales for business combinations are captured by relative firm characteristics, and that firm characteristics can be used to validate the determination of the acquirer by the control concept. The general findings of this empirical study suggest that control is largely consistent with the economic motivation for mergers and acquisitions, and that firm characteristics of the acquirer and the acquiree reflect these motivations. However, economic indicators do not reflect accounting control for reverse acquisitions.

Robert Gutsche, Thomas Berndt

6 Aug 2013