Choice between Acquisition and Joint Venture Based on Financial Statement Comparability

Heein Yi, Sangsoo Kim and Seunghun Han
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Heein Yi: School of Business and Technology Management, College of Business, Korea Advanced Institute of Science and Technology, 291 Daehak-ro, Yuseong-gu, Daejeon 34141, Korea
Sangsoo Kim: Ingenium College of Convergence Studies, Hankuk University of Foreign Studies, 81 Oedae-ro, Mohyeon-eup, Cheoin-gu, Yongin-si 17035, Korea
Seunghun Han: School of Business and Technology Management, College of Business, Korea Advanced Institute of Science and Technology, 291 Daehak-ro, Yuseong-gu, Daejeon 34141, Korea

Sustainability, 2021, vol. 13, issue 11, 1-15

Abstract: This study examined the relationship between target firms’ financial statement comparability and bidder firms’ boundary decisions. The study used initial public offering (IPO) firms as target firms to test the impact of asymmetric information and signaling on investing bidder firms’ boundary decisions, such as joint ventures or acquisitions. In the IPO market, as an experimental setting, bidder firms are unfamiliar with issuing firms because they have little information about them prior to the IPO. This study argues that IPO firms with higher accounting comparability show lower information asymmetry. Consistent with this argument, we found that IPO firms’ accounting comparability has a positive probability of becoming a target for either a joint venture or acquisition, or an acquisition instead of a joint venture. This study contributes to the literature, financial statement comparability, and joint venture and acquisition decisions to measure the degree to which information asymmetry affects corporate investment strategy using a unique experimental setting of IPO firms.

Keywords: information asymmetry; signaling theory; financial statement comparability; acquisition; joint ventures (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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