skip to main content
Language:
Search Limited to: Search Limited to: Resource type Show Results with: Show Results with: Search type Index

Real activities manipulation by bidders prior to mergers and acquisitions

Review of accounting & finance, 2017-01, Vol.16 (3), p.322-347 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited 2017 ;ISSN: 1475-7702 ;EISSN: 1758-7700 ;DOI: 10.1108/RAF-12-2014-0132

Full text available

Citations Cited by
  • Title:
    Real activities manipulation by bidders prior to mergers and acquisitions
  • Author: Farooqi, Javeria ; Ngo, Thanh ; Jory, Surendranath
  • Subjects: Accrual basis accounting ; Acquisitions & mergers ; Bidders ; Bids ; Earnings management ; Financial performance ; Hypotheses ; Investments ; Literature reviews ; Manipulation ; Prices ; Stock prices ; Stock splits ; Studies
  • Is Part Of: Review of accounting & finance, 2017-01, Vol.16 (3), p.322-347
  • Description: Purpose This study aims to examine the ability of investors to process signs of real activities manipulations at bidder firms in the quarters leading to the announcement of a merger. It further provides a supplementary explanation for the post-merger underperformance puzzle. Design/methodology/approach Examining a sample of cash-only, stock swap and mixed mergers completed between 1980 and 2011, it was found that bidder firms increase the use of real activities manipulation in the quarters leading up to the merger announcements. Using average abnormal stock return method, it is shown that the short-term positive effect of real activities manipulation on share prices is stronger than accrual-based earnings management. Findings While bidders are able to escape investors’ scrutiny in the short run, it is not the case in the long run. It was found that bidders’ long-run stock performance, measured by matched buy-and-hold stock returns, is inversely related to their pre-announcement level of earnings management. This paper contributes to the literature on earnings management by considering how real activities manipulations affect stock prices in mergers and acquisitions. Originality/value This study tests whether real activities manipulation, in addition to accrual-based earnings management, explains the underperformance puzzle of the acquiring firms in M&As. Zang (2012) argues that there is a greater likelihood for firms to engage in real activities manipulation, especially when firms are constrained in their use of accrual-based earnings management owing to heightened scrutiny or overuse in prior years.
  • Publisher: Patrington: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 1475-7702
    EISSN: 1758-7700
    DOI: 10.1108/RAF-12-2014-0132
  • Source: ProQuest Central
Back to results list
INSPIRE LIBRARY - TON DUC THANG UNIVERSITY (84-028) 37 755 057 Feedback
19 Nguyen Huu Tho St. Dist.7, HCM thuvien@tdtu.edu.vn

Copyright © 2017 INSPIRE LIBRARY - TON DUC THANG UNIVERSITY

Searching Remote Databases, Please Wait