PurposeTo investigate whether acquiring firms listed in the Athens Stock Exchange, that completed mergers and acquisitions during the period 2001‐2003, tend to manipulate accounting earnings upward prior to the initiation and completion of the transaction.Design/methodology/approachThe focus is on discretionary accruals as a measure of managers' earnings manipulation. To estimate discretionary and non‐discretionary components of total accruals the time series Jones model is adopted.FindingsResults provide weak evidence of biased accruals reported by managers in the year preceding the announcement and the completion of the deal. The results seem to agree with those of Erickson and Wang who found no evidence of pre‐merger earnings management by a sample of acquiring firms that were involved in cash mergers.Research limitations/implicationsThe model applied, even if it is considered effective in discriminating abnormal from normal accruals, has been shown to have certain deficiencies, while simultaneously the time series data and number of firms used here could be considered as small. Within the aforementioned limitations further research could examine the effect of mergers and acquisitions in the stock price of the acquiring of target firms and the possibility of earnings management by target firms, since target managers may have different incentives to manipulate earnings.Practical implicationsFindings are of particular interest to Greek regulators for policy‐making purposes as well as to investors in the Greek capital market.Originality/valueTo the best of one's knowledge this is the first study to examine earnings management by acquiring firms in the European capital market context.
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