Earnings management of target firms and deal premiums: The role of industry relatedness

Perafán-Peña, Héctor Fabio; Noguer, Belén Gill de Albornoz; Inchausti, Begoña Giner

doi:10.1016/j.bar.2021.101038

Cited by 11 publications

(14 citation statements)

References 125 publications

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“…18 Perafán-Peña et al (2021) find a positive association between EM and the deal premium, which is mitigated for intra-industry transactions. 19 The information was collected through the FactSet database, which follows the definition for insiders defined by the country regulation.…”

Section: Insider Ownershipmentioning

confidence: 89%

“…Following previous studies, we consider that in intra-industry deals (i.e., when the acquirer and the target are in the same industry), the acquirer has an advantage in understating the activities but also the accounting information of the target (C. -W. Chen et al, 2018;Perafán-Peña et al, 2021;Raman et al, 2013). 18 The acquirer may have the same accounting policies and procedures as the target firm (e.g., Cooke, 1992;Jaafar & McLeay, 2007;Meek et al, 1995;Reppenhagen, 2010;Verrecchia, 1983).…”

Section: Industry Relatednessmentioning

confidence: 99%

“…In the same vein, Farooqi et al (2020) find a negative association between the level of REM and the premium. Finally, Perafán-Peña et al (2021) consider that EM is exogenous in M&A. They assume (and observe) that target firms with an income-increasing strategy experience a higher deal premium.…”

Section: Introductionmentioning

confidence: 99%

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The consequences of earnings management for the acquisition premium in friendly takeovers

Franck

Cédric

2022

Business Fin & Account

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This study investigates the effect of earnings management (EM) on deal premiums in friendly takeovers. It examines both accruals and real EM in the year preceding the deal announcement, based on a sample of 578 European firms subject to an acquisition or acquisition attempt between 2005 and 2015. The empirical findings suggest that downward EM is associated with a higher premium offered by the acquirer. The results suggest that income‐decreasing accounting choices could be a negotiated strategy between the acquirer and target firms’ managers to clean the balance sheet, reduce the likelihood of litigation, and create a fictive performance through an accrual reversal post‐acquisition.

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Section: Insider Ownershipmentioning

confidence: 89%

Section: Industry Relatednessmentioning

confidence: 99%

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The consequences of earnings management for the acquisition premium in friendly takeovers

Franck

Cédric

2022

Business Fin & Account

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“…These risks pertain to issues such as target valuation and customer concentration at target firms (Cheng et al, 2022). While studies in this frontier examine a variety of mechanisms/devices for mitigating information asymmetry, including the use of stock (Cheng et al, 2022), contingent considerations such as earnouts (Battauz et al, 2021), seller financing (Jansen, 2020), earnings smoothing (Doukas & Zhang, 2020), sharing of same industry between acquirers and targets (Perafán‐Peña et al, 2022) and other contracting and signalling mechanisms in acquisitions, the predominant focus has been on earnouts. In particular, the research in this cluster documents that in addition to information asymmetry, the acquirer's cultural background (Ewelt‐Knauer et al, 2021), acquirer's earnings quality (Prencipe & Viarengo, 2022) and change in accounting standards (Chaney et al, 2020) can also influence the use of earnouts as a payment method in acquisitions.…”

Section: Research Fronts and Future Directionsmentioning

confidence: 99%

Mergers and acquisitions research in finance and accounting: Past, present, and future

Kanungo

Jindal

Kumar

et al. 2023

Euro Fin Management

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This study presents an analysis of publication patterns and major themes in research on mergers and acquisitions in finance and accounting. We find that takeovers as mechanisms of governance, drivers of mergers, mechanisms of mergers, bank mergers, cross‐border mergers, shareholder wealth effects of mergers and related events, and the role of financial experts and ownership structure form major themes of research in the finance area, while in accounting area major themes are corporate governance and accounting outcomes, predicting takeovers and their outcomes, valuation, financial reporting and takeover decisions, and financial reporting and performance.

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“…, 2019), potential mergers and acquisitions (Erikson and Wang, 1999; Louis, 2004; Campa and Hajbaba, 2016; Mughal et al. , 2021; Perafán-Peña et al. , 2021), launching public offers (Teoh et al.…”

Section: Introductionmentioning

confidence: 99%

The effect of corruption on the level of real and accrual earnings management in cases of target firms

Christopoulos

Dokas

Leontidis

et al. 2022

EMJB

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PurposeThis paper attempts to investigate the effect of corruption on the real and accrual earnings management of target firms in the process of mergers and acquisitions.Design/methodology/approachThe sample includes target firms from the European area that participate in mergers or acquisitions announced during 2010–2020. The preliminary empirical part estimates the level of earnings management during the period two years before the deal's announcement to identify whether the sample follows the manipulation behavior that the literature suggests for target firms. The primary empirical analysis focuses on the impact of corruption on real and accrual-based earnings management proxies, employing regression models and two alternative proxies for corruption. The existing literature points out that the combination of low levels of corruption and an integrated legal system reduces earnings manipulation.FindingsThe findings provide strong evidence for systematic downwards accounting manipulation practices, whereas the findings for real earnings management are not significant. The findings of the main empirical part show that corruption is positively associated with accrual-based manipulation and negatively related to real earnings management. In essence, in economies with a high level of transparency, managers adopt the manipulation of operating activities as a less detectable practice of earnings management instead of engaging in accounting procedures.Originality/valueThis study contributes to the literature highlighting the diversification of these firms' manipulation strategies according to the national level's corruption status.

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Earnings management of target firms and deal premiums: The role of industry relatedness

Cited by 11 publications

References 125 publications

The consequences of earnings management for the acquisition premium in friendly takeovers

The consequences of earnings management for the acquisition premium in friendly takeovers

Mergers and acquisitions research in finance and accounting: Past, present, and future

The effect of corruption on the level of real and accrual earnings management in cases of target firms

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