Date of Submission
Campus Only Senior Thesis
Bachelor of Arts
OCLC Record Number
In this paper, I attempt to expand upon prior research regarding the concealment of financial accounting fraud by means of corporate mergers and acquisitions. Additionally, I specify this analysis towards the impact that the passing of the Sarbanes-Oxley Act of 2002 (SOX) had on M&A activity in SEC charged firms by contrasting my findings from the pre Sarbanes-Oxley era (1994-2002) to the post Sarbanes-Oxley era (2003-2014).
Prior research on this topic has indicated that firms charged by the SEC have an increased likelihood of completing mergers and acquisitions either just before, or soon after they are charged, at a statistically significant level (Bar-Gill et al., 2003) (Wang, 2006) (Nichols et al., 2008). These studies have utilized AAER (Accounting & Auditing Enforcement Releases) data filings from the SEC, as well as data from Compustat and CRSP to conduct their research. The data in this paper utilizes the University of Southern California’s AAER dataset as well as external research through company filings, CapIQ, and GuruFocus. The final dataset was a small sample size of 147 individual companies charged with financial accounting fraud by the SEC from 1994 to 2014.
The decision to commit accounting fraud is typically made by either one person, or a select few of high ranking employees within a corporation, and not the company. Individual’s decision making processes are incredibly hard to quantify, and the results of this study reflect this level of difficulty. The regression analyses conducted in this study were inconclusive, though two independent variables, the year in which a company was charged, and being identified as a serial M&A participant, yielded statistically significant results at a 99% and 95% confidence levels, respectively. Both variables were negatively correlated with the Beneish M-Score, the dependent variable in my regressions. This implies that companies charged by the SEC for accounting fraud in more recent years, as well as companies that have completed five or more mergers and acquisitions within the period, are less likely to manipulate earnings, and therefore less likely to attempt to conceal falsified company statements by means of engaging in M&A activity.
Judge, Declan, "Did Sarbanes-Oxley Alter M&A Activity Amongst Corporations Charged With Financial Accounting Fraud?" (2021). CMC Senior Theses. 2533.
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.