Evaluating the SDC Mergers and Acquisitions Database

Date01 November 2014
Published date01 November 2014
The Financial Review 49 (2014) 793–821
Evaluating the SDC Mergers and
Acquisitions Database
Beau Grant Barnes
Washington State University
Nancy L. Harp
Clemson University
Derek Oler
TexasTech University
We compare 20 years of data from Thompson Financial SDC Platinum (SDC)’sMergers
and Acquisitions database with a hand-collected database, providing evidence on the complete-
ness and accuracy of SDC data across time. We find that our hand-collected data is generally
more accurate than SDC, but SDC’saccuracy and coverage improves over time. Our investiga-
tion of discrepancies between the databases finds that SDC is more prone to errors on smaller,
high book-to-market acquirers with weak announcement period market responses. Preliminary
analyses suggest that this potential bias is not significant, but could affect inferences when
examining smaller, high book-to-market firms.
Keywords: SDC, mergers, acquisitions
JEL Classifications:G34
Corresponding author: Department of Accounting, WashingtonState University, 237G Todd Hall, Pull-
man, WA99164-4729; Phone: (509) 335-4472; Fax: (509) 335-4275; E-mail: beau.barnes@wsu.edu.
We are grateful for the contribution of an initial data set of 947 acquisitions provided by TimLoughran.
We are also grateful for the research assistance of Sari Ruben, Andrea Caggiano, Khary Barnes, Zenyep
Eroglu, and Troy Engstrom in the development of this database. We are also thankful for the thoughtful
comments received during the review process.
C2014The Eastern Finance Association 793
794 B. G. Barnes et al./The Financial Review 49 (2014) 793–821
1. Introduction
Researchers require data that is relatively complete and accurate to draw mean-
ingful conclusions. The Thompson Financial SDC Platinum (SDC) database has fa-
cilitated a significant amount of research into mergers and acquisitions (MA) and has
been cited regularly in major accounting and finance journals over the past decade.1
Some authors express concern over the completeness of the information provided
by SDC, but there is little agreement on the precise year that data in SDC becomes
reliable enough to warrant its use in research. For example, Aboody, Kasznik and
Williams (2000, p. 272) report that they begin their sample with 1991 because “this
is the first year for which the acquisition data provided by SDC are complete.” In
contrast, Baker and Savasoglu (2002, p. 97) use 1981 as their starting year, noting
that “prior to 1981, SDC does not provide full coverage of mergers and acquisitions.”
Other papers using SDC typically report a starting year within these two extremes,
in one case stating that “coverage is more likely to be spotty in the 1980s than in the
1990s” (Pontiff and Woodgate, 2008, p. 931).
The accuracy of data reported in SDC’s MA database has also been questioned.
For example, Bharadwaj and Shivdasani (2003) report using the acquirer’s 14D-1
Securities and Exchange Commission (SEC) filings as a better source of information
for financing data, where available, because SDC’s data appears to be less reliable.
Faccio and Masulis (2005, p. 1351) use the SDC MA database for mergers between
1997 and 2000 and note that they “ ...found (and fixed) a number of mistakes in the
SDC database” when attempting to calculate merger size. While concerns over SDC
accuracy have accumulated in the literature, there has been little empirical work that
addresses the degree of completeness and accuracy of the SDC MA database.2
Our paper complements the recent work of Netter, Stegemoller and Wintoki
(2011), who examine the effect of various screens placed on data from SDC. They
show that the conclusions drawn by researchers on acquisition waves and the market
response to acquisition announcements are sensitive to the screens used (e.g., if
private target firms are excluded, or if only acquirers with Compustat data available
are used). While they focus on the effect of broad and commonly used data screens,
we focus on observations from SDC that meet the more commonly used screens (both
the target and acquirer must be included in the CRSP database, the acquirer must
also be included in Compustat, and the target must be 100% acquired and delisted).
Our study also contrasts Netter, Stegemoller and Wintoki (2011) in that we focus on
providing detailed information about the accuracy and completeness of SDC across
1A search for articles in the Journal of Finance, Journal of FinancialEconomics, Journal of Accounting
and Economics, Journal of Accounting Research, Review of Accounting Studies, Review of Financial
Studies,andtheAccounting Review from 2000–2010 yields 52 MA studies that reference SDC.
2One exception regarding accuracy is Fuller,Netter and Stegemoller (2002) who, in their investigation of
1990s acquiring-firm returns, randomly sample 500 acquisitions and attempt to verify the corresponding
SDC announcement date. They report an SDC error rate of 7.4%.

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