Firms that restate results are less likely to become takeover targets, according to research

Companies that restate their results are “significantly less likely” to become takeover targets, according to new research from Cambridge Judge Business School.

The seven-year study, which examined 2,000 pairs of restating and non-restating US firms, found a 44% difference in the likelihood of a takeover bid over the 12 months following restatement.

The research also showed a 3.2% likelihood of a takeover bid for restating firms, whilst the figure jumped to 5.7% for non-restating firms.

The paper theorises that potential bidders may be deterred from buying such companies due to the perceived threat that more unexpected information may emerge from restating firms.

The paper stated that: “Higher information risk after restatement filings deter potential bidding firms from correcting inefficiencies within restating firms via the forces of the disciplinary takeover.”

The paper was written by Amir Amel-Zadeh, finance lecturer at Cambridge Judge Business School, and Yuan Zhang of the Naveen Jindal School of Management at the University of Texas at Dallas.