The Effects of Accounting Fraud on Merger in Sudanese Industry

University Of Bahrain Collage of Business Administration

A Paper Highlighting: How accounting fraud has changed merger valuation Prepared For: Professor Omar Al-­‐Jahmani Course: Advanced Financial Accounting (ACC 610) Term: Second Semester, 2012-­‐2013

Prepared By: Mohamed S Sultan, MBA Program ID#: 20121025

Date: May 20th, 2013

The Effects of Accounting Fraud on Merger in Sudanese Industry

Introduction

The accounting fraud of Enron and Worldcom in the United States has changed the way companies deal with merger. This fraud led to the creation of the Sarbanes–
Oxley Act (SOX) in 2001, which contained numerous provisions changes for firms that pursue mergers. This paper documents significant changes in the behavior and valuation of mergers since SOX, like the fact that acquirers rely more heavily on financial and legal advisors now, while targets rely more heavily on financial advisors. The consideration that acquirers pay for targets is significantly lower since
SOX, as it usually used to be overvalued most of the time before SOX. The long-term stock price performance following mergers is more favorable since SOX, regardless of the method used to measure long-term stock price performance. Whether the more less risk taking pursuit of targets by acquirers is voluntary or forced by SOX provisions, acquirer decision making has improved dramatically since the accounting fraud and the introduction of SOX.
Before 2001, firms were not as closely monitored by investors, and were more likely to make decisions without reasonable and properly monitored steps. But Since the financial fraud by Enron, major changes have occurred

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