Information Quality and Earnings Enhancement of the Bargain Purchase Gain

Abstract

A bargain purchase gain arises for the acquiring company when the fair value of the acquired firm exceeds its purchase price. Since 2009, accounting standards require the excess to be immediately recognized as a bargain purchase gain in the acquiring company’s results of operations. This study examines such gains of non-financial firms covered by the SEC EDGAR database from 2009 to 2014. Our findings cast doubt on the informativeness of the reported bargain purchase gains and suggest that different companies may engage the bargain purchases for different reasons.