The Value Relevance of Earnings and Book Value Under Pooling and Purchase Accounting

This study examines the value relevance of reported earnings and book value under pooling-of-interests and purchase accounting. Using a sample of 110 merger or acquisition transactions from the period 1988 to 1996, the value relevance of the two accounting approaches is investigated by examining the correlation of post-merger earnings and book value with share price. Regression analysis using Ohlson's (1995) valuation model is conducted for the merger year (m) and the subsequent year (m+1) using three samples (pooling only, purchase only and a combined sample). The results are as follows: