Spring-loading future performance when no one is looking? Earnings and cash flow management around acquisitions

Chen, Shuping; Thomas, Jake; Zhang, Frank

doi:10.1007/s11142-016-9365-z

Cited by 22 publications

(13 citation statements)

References 12 publications

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“…For example, acquisitions often create compensation incentives. Prior literature shows that CEOs receive large post-acquisition compensation awards that are unrelated to performance (e.g., Grinstein and Hribar 2004;Harford and Li 2007) and use M&A transactions to manage earnings (e.g., S. Chen et al 2016;Ali et al 2018). For these reasons, acquirers face pressures and incentives to close deals quickly.…”

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confidence: 99%

M&A Due Diligence, Post‐Acquisition Performance, and Financial Reporting for Business Combinations

Wangerin

2019

Contemporary Accting Res

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Before completing merger and acquisition (M&A) transactions, acquiring firms conduct due diligence. This process provides acquiring firms with a more informed assessment of the expected costs, benefits, and risks of an acquisition and offers one last opportunity to renegotiate or terminate an M&A transaction. However, acquiring firms must trade off the costs and benefits of performing additional due diligence versus completing the acquisition. Based on an analysis of the time to negotiate the acquisition agreement and complete the transaction, I predict and find that competitive pressures, short‐term financial reporting incentives, and agency problems are associated with less due diligence. I also find that less due diligence is associated with lower post‐acquisition profitability, a higher probability of acquisition‐related goodwill impairments, and lower quality fair value estimates for the acquired assets and liabilities. These findings highlight due diligence as an important factor explaining cross‐sectional variation in post‐acquisition performance and financial reporting for business combinations.

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confidence: 99%

M&A Due Diligence, Post‐Acquisition Performance, and Financial Reporting for Business Combinations

Wangerin

2019

Contemporary Accting Res

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“…Early studies support the thesis that acquired companies perform EM before hostile transactions (Easterwood, 1998) and stock-for-stock deals (Erickson & Wang, 1999). More recently, Chen, Thomas, and Zhang (2016) suggest that the target's EM activity before the merger is not always at the expense of the acquirer, since they provide evidence of downward EM to transfer profits to future years, which helps bidders justify the premium paid. Campa and Hajbaba (2016) show that targets carry out real EM activities before cash deals, and that this activity is related to the subsequent poor performance of the acquirer.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 96%

“…Electronic copy available at: https://ssrn.com/abstract=3222515 Kothari et al (2005) is the most commonly used measure (e.g., Alsharairi et al, 2015;Baik et al, 2015Baik et al, , 2007Botsari & Meeks, 2008;Chen et al, 2016;Francoeur et al, 2012;Gong et al, 2008;Lehmann, 2015;Louis, 2004). Related studies on FRQ of target firms also use DA adjusted to performance (Skaife & Wangerin, 2013).…”

Section: Discretionary Accruals (Da) Estimated Through the Performanc...mentioning

confidence: 99%

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

Perafán-Peña

Noguer

Inchausti

2022

The British Accounting Review

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“…This study used a one-tailed test in the directional hypotheses following the recent M&A studies, e.g., Brown, Davis-Friday [138], and Chen, Thomas [139]. In the hypothesis test, H1 indicates that acquirer's country brand equity (CBE) has no direct relationship with the degree of CBA standardization.…”

Section: Hypothesis Testingmentioning

confidence: 99%

Country Brand Equity: The Decision Making of Corporate Brand Architecture in Cross-Border Mergers and Acquisitions

Barua

Ioanid

2020

Sustainability

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Cross-border merger and acquisition (CBM&A) is a dominant and sustainable antagonistic strategy, but a relevant concern like a country has inadequately been emphasized over the five decades of acquisition studies. Therefore, this article attempts to examine the impact of country brand equity (CBE) on corporate brand architecture (CBA) in post-CBM&A. It first originates a hypothetical model esteeming Resource-Based View (RBV) and Industrial Organization (IO) theory following the Structure-Conduct-Performance (SCP) paradigm. Then, it tests the model conducting a web survey on 124 acquiring corporates from 29 countries that accomplished CBM&A transactions between 1990 and 2014. The empirical findings clarify that the market aspect, such as the acquirer’s more substantial country brand equity, indirectly leads to the high degree of CBA standardization in the host market through prioritized intangible and strategic resources—corporate reputation and corporate brand management system. Individually, the acquirer’s corporate reputation cumulatively yields a high degree of CBA standardization with corporate brand power, which has only a direct effect. On the other hand, the corporate brand management system leads to a high degree of CBA standardization cumulatively with corporate reputation. It is deemed that the research findings as a whole reveal a framework for the application of country brand equity and corporate brand architecture in post-CBM&A.

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Spring-loading future performance when no one is looking? Earnings and cash flow management around acquisitions

Cited by 22 publications

References 12 publications

M&A Due Diligence, Post‐Acquisition Performance, and Financial Reporting for Business Combinations

M&A Due Diligence, Post‐Acquisition Performance, and Financial Reporting for Business Combinations

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

Country Brand Equity: The Decision Making of Corporate Brand Architecture in Cross-Border Mergers and Acquisitions

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