How far does financial reporting allow us to judge whether M&A activity is successful?

Evidence from share price returns suggests that acquisitions destroy value. On the other hand, evidence from accounting measures of performance suggests that acquisitions give rise to synergies and therefore potentially create value. In this paper, we first revisit the UK evidence using an updated sample, and confirm that these findings still hold, and importantly hold in the period following the introduction of FRS10. We then reconcile the (apparently conflicting) findings from these market-based and accounting-based approaches. Using accounting measures of performance, we confirm the presence of synergies developed during acquisitions. Finally we show that post-acquisition abnormal returns are associated with news of synergistic benefits conveyed in the financial statements.