Research seminar “Intended or Unintended Consequences of Business Regulations? The Case of Acquisitions in the Financial Services Industry” by Bharat Sarath, Professor of Accounting, Rutgers University.
WHEN: Monday, March 5, 12.30 – 13.30
WHERE: Block C3 (GSB/GSPP Building), 3rd floor, Room 3037
ABSTRACT: (please see paper attached)
ASC 805 gives the management of an acquiring firm flexibility in valuation and the possibility of recognizing day one bargain purchase gains (BPG). BPG acquisitions occurred frequently in the financial services industry during the crisis of 2008 and some of these acquisitions were assisted by the FDIC which provided partial indemnification against future losses. Regulatory scrutiny by the FDIC of potential future losses formed the basis for the indemnification agreements and counter-acted the use of BPG for earnings management. By comparing across all types of bank acquisitions (FDIC assisted and non-assisted), our results show that fair values reflected the underlying economic assets more accurately in FDIC assisted transactions whereas management was able to use inflated fair values to present an over-optimistic picture in Non-FDIC BPG acquisitions. Overall, our results use a novel institutional arrangement to demonstrate the inherent tension between optimism and relevance in fair value measurements.
Dr. Sarath is a professor of accounting at Rutgers University and Editor-in- Chief of the Journal of Accounting, Auditing and Finance. Prior to coming to Rutgers, Dr. Sarath taught Mathematics at Shiraz University and the University of Calgary and Accounting at the Wharton School, University of Pennsylvania, the Stern School at New York University and the Stan Ross School of Accountancy at CUNY/Baruch. He received a BA (Honors) in Mathematics from Pembroke College, Cambridge and also holds doctorates in Mathematics (University of Calgary) and Accounting (Stanford University). Dr. Sarath has published papers in Mathematics, Physics, Economics and Accounting. Dr. Sarath’s experience in teaching includes Executive Teaching for Rutgers University, Morgan Stanley, Credit-Suisse and FCMG, CUNY/Baruch the University of Pennsylvania Engineering School and the United Nations. His business-related consulting experience includes development of costing systems for the New York City Board and the United Nations as well as Statistical analysis related to legal actions.