Which of the following is a possible reason why security prices were found to respond to changes from pooling to purchase accounting for combinations?

Question

Quizplus · Accepted Answer

The change from pooling to purchase accounting could have affected dividend distribution because of debt covenants. When a company has debt covenants, they may be required to maintain certain financial ratios, such as debt-to-equity ratio or interest coverage ratio. The change in accounting treatment could affect these ratios, potentially leading to a breach of covenant and restrictions on dividend distributions. Therefore, security prices may respond to changes in accounting treatment due to the potential impact on dividend distribution.

Which of the Following Is a Possible Reason Why Security