Earnings Management and the Market Performance of Acquiring Firms PDF Download
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Author: Henock Louis
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
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Book Description
I examine the market's efficiency in processing manipulated accounting reports and provide an explanation for the post-merger underperformance anomaly. I find strong evidence suggesting that acquiring firms overstate their earnings in the quarter preceding a stock swap announcement. I also find evidence of a reversal of the stock price effects of the earnings management in the days leading to the merger announcement. However, the pre-merger reversal is only partial. There is evidence of a post-merger reversal of the stock price effects of the pre-merger earnings management. The results suggest that the extant evidence of post-merger underperformance by acquiring firms is partly attributable to the reversal of the price effects of earnings management. The study also suggests that the post-merger reversal is not fully anticipated by financial analysts in the month immediately following the merger announcement. However, consistent with suggestions in the financial press that managers guide analysts' forecasts to quot;beatablequot; levels, the effect of the earnings management reversal seems to be reflected in the consensus analysts' forecasts by the time of the subsequent quarterly earnings releases.
Author: Henock Louis
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
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Book Description
I examine the market's efficiency in processing manipulated accounting reports and provide an explanation for the post-merger underperformance anomaly. I find strong evidence suggesting that acquiring firms overstate their earnings in the quarter preceding a stock swap announcement. I also find evidence of a reversal of the stock price effects of the earnings management in the days leading to the merger announcement. However, the pre-merger reversal is only partial. There is evidence of a post-merger reversal of the stock price effects of the pre-merger earnings management. The results suggest that the extant evidence of post-merger underperformance by acquiring firms is partly attributable to the reversal of the price effects of earnings management. The study also suggests that the post-merger reversal is not fully anticipated by financial analysts in the month immediately following the merger announcement. However, consistent with suggestions in the financial press that managers guide analysts' forecasts to quot;beatablequot; levels, the effect of the earnings management reversal seems to be reflected in the consensus analysts' forecasts by the time of the subsequent quarterly earnings releases.
Author: Sipei Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
This study investigates acquiring firms' earnings management (EM) strategies around mergers and acquisition (M&A) in the US market and analyzes firm's post-acquisition performance. Acquirers are shown to use both accruals management (AM) and real earnings management (REM), both prior to and after acquisition. The EM behaviors are not exclusive to firms that employ stock-for-stock payments; firms that use 100% cash payments or mixed cash and stock payments also manage their earnings during the years around acquisition. REM does not act mainly as a substitute for AM, we show that there exist some complementary effects between REM and AM. Finally, the results suggest that the pre-acquisition EM has (positive) negatively effect on the (non-)repetitive acquirer's post-acquisition performance.
Author: Aref Mahdavi Ardekani
Publisher: LAP Lambert Academic Publishing
ISBN: 9783659378553
Category :
Languages : en
Pages : 104
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Book Description
This book examined the relationship between earnings management and performance of acquiring firms in Malaysia during period of 2004-2010. Earnings management measured by discretionary accruals derived from modified Jones model and firm's performance estimated by monthly Cumulative Abnormal Return. Firms are selected from both listed cash and share acquirers firms on Bursa Malaysia in the period of 2004-2010. This study consists of two steps. In the first step, it examines whether acquirer firms manipulate their earnings prior to acquisition announcement dates and in the second step, it measures the effects of earnings management on performance of acquirer firms by means of simple regression. The results indicated that share acquirer firms unlike cash acquirers manipulated their earnings preceding acquisition announcement date. Furthermore, they presented a negative relationship between earnings management preceding and performance of firms following the acquisition date for share acquirer firms.
Author: Merle Erickson
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This study investigates the manipulation of accounting earnings in the period preceding the announcement and completion of stock for stock mergers by a sample of acquiring firms. Results indicate that in the quarters prior to the merger, acquiring firms manage earnings upward. This result is consistent with the conclusion that acquiring firms use accounting procedures in an attempt to increase their stock price prior to stock for stock mergers.Further investigation indicates that unexpected accounting accruals are related to the economic benefits at stake to the acquiring firm and its manager-shareholders. We measure economic benefits to the acquiring firm from increased reported accounting earnings as the deal ratio (deal value as a percentage of the acquiring firm's market value) and management ownership of the acquiring firm. Our analysis indicates that acquiring firm income increasing accounting manipulations prior to a merger are positively related to the relative size of the deal.
Author: Pascal Alphonse
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
For an M&A context, this paper investigates stock payment acquirers' trade-off strategy between accruals-based earnings management (AM) and real earnings management (REM) and it impacts on firm's post-acquisition performance during the period before and the period after the Sarbanes-Oxley Act (SOX). We find that stock payment acquirers, in addition to using pre-acquisition AM, are likely to use REM. Additionally, “mixed-stock” acquirers (stock payments greater than 50% but less than 100%) show more significant AM behaviors than the stock-for-stock acquirers, as shown in the literature, possibly because the disclosure of this strategy involves the latter firms but not for the former. This paper first illuminates “mixed-stock” acquirers' earnings management (EM) strategy. We also find substitution effects between EM methods and that the choice of EM is closely related to an M&A's payment method, the SOX and whether the acquirer made the acquisition(s) shortly before the SOX. Results of the performance analysis suggest that the SOX has negatively impacts the long-term post-acquisition performance and that mixed-stock acquirers and 100% stock-for-stock firms have similar negative post-acquisition performance and market reactions. Furthermore, we discover mixed effects of EM behaviors on post-acquisition performance. The global picture suggests that, for the most part, the financial market cannot effectively perceive a firm's pre-acquisition EM, and it reacts in a "unified" optimistic way to stock payment deals in the short term. In the long term, it associates a firm's future growth to its current performance and that pre-acquisition management no longer matters, though pre-acquisition AM users show better performance.
Author: Magdalena Pikula
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Raunaq S. Pungaliya
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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Book Description
We investigate possible earnings management by inflating discretionary accruals in a sample of 1,719 cash acquirers and 895 stock acquirers during 1989-2005. Following previous literature, we document higher ROA-matched discretionary accruals for stock acquirers than for cash acquirers. However, simulation evidence with quarterly data shows that ROA-matched discretionary accruals are misspecified for both high-growth and low-growth firms. This is relevant to the current investigation because the median sales growth rate equals 12.1% for cash acquirers and 38.5% for stock acquirers (besides similar differences in other growth measures). We propose a new discretionary accrual measure that controls for both ROA and sales growth. This measure is well-specified and powerful in detecting earnings management in stratified random samples, and it leads to an insignificant difference between discretionary accruals of cash and stock acquirers. Other tests of acquirer incentives to manage earnings, market reaction to earnings management, and time delay between earnings announcement and merger announcement strengthen the evidence against earnings management attributed to stock acquisitions.
Author: Siew Hong Teoh
Publisher:
ISBN:
Category : Accrual basis accounting
Languages : en
Pages : 50
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Book Description
Author: Steven B. Lilien
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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Book Description
The new accounting standard (FASB ASC 805) requires acquiring firms to estimate the fair value of net assets acquired and recognize the excess amount over purchase price as a bargain purchase gain, a component of current earnings. The flexibility in fair value measurement provides acquiring management with discretion to determine the amount of the bargain purchase gain, and thereby, inflate income. This paper investigates the association between bargain purchase gains booked by the acquirer and smoothing of acquirers' earning performance across time. We find that bargain purchase gains, and in particular, the level-3 fair value estimates of intangible assets acquired, have consistently been used to smooth earnings but that such smoothing activities are not associated with long-term market returns.
Author: Seraina C. Anagnostopoulou
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
Empirical evidence regarding accrual-based earnings management around mergers and acquisitions has been setting-specific as far as target firms are concerned. This might be due to the fact that target firms cannot always anticipate an acquisition proposal, and thus lack the motive and the time necessary to manage their earnings in order to facilitate or impede the deal. In this paper, we provide clear evidence of downward earnings management by a sample of target firms that have both time and motive to engage in such actions. These are firms that publicly announce their intention to be acquired. Publicly 'seeking a buyer' represents a rather unusual corporate event, and we find that these firms engage in downward earnings management in the years surrounding the 'announcement year'. To some extent, this result is explained by overrepresentation of low performance and growth among these firms, and it can be interpreted under alternative explanations. Furthermore, we show that such downward earnings management negatively affects the probability for a 'seeking buyer' firm to secure an acquisition within a reasonable amount of time, a possible indication of efficient diligence by prospective buyers having a preference for firms 'seeking buyer' with no informationally obscure earnings.
