Accounting diversity and premium in cross-border M&As.

We investigate if the different quality of the acquirer’s accounting standards (GAAP) affects the premiums paid in cross-border mergers and acquisitions (M&As). Following Bae et al. 2008, we compute an accounting diversity (AD) score as a proxy for the quality of the acquirer accounting system with respect to the US GAAP, assumed as benchmark. Considering a sample of cross-border M&As completed between 1990 and 2015 only with US listed targets, we show that premiums paid are higher than in domestic M&As and they increase with the acquirer AD. Since a higher AD implies less effective shareholder monitoring and governance controls, high-AD acquirers have more room and incentives for an “empire building” behavior. Our results support the hubris and agency hypotheses, and the idea that high-quality GAAP could benefit investors by improving the corporate governance mechanisms.