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Earnings Management By Acquiring Firms In Stock For Stock Mergers
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Book Synopsis Earnings Management by Acquiring Firms in Stock for Stock Mergers by : Merle Erickson
Download or read book Earnings Management by Acquiring Firms in Stock for Stock Mergers written by Merle Erickson and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Acquiring Firms' Earnings Management Strategies Around Merger and Acquisitions by : Sipei Zhang
Download or read book Acquiring Firms' Earnings Management Strategies Around Merger and Acquisitions written by Sipei Zhang and published by . This book was released on 2017 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Stock-for-stock Mergers, Directors' Characteristics and Real Activities Manipulation by : Olukemi Olutoyin Fasipe
Download or read book Stock-for-stock Mergers, Directors' Characteristics and Real Activities Manipulation written by Olukemi Olutoyin Fasipe and published by . This book was released on 2015 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this study is to examine whether firms which engage in stock-for-stock mergers manipulate real activities in the fiscal year preceding the merger announcement. In addition, I examine whether certain directors' characteristics are effective in curtailing or instead are associated with real activities manipulation. In stock-for stock mergers, the number of shares that the acquiring firm has to exchange for each share of the target firm depends on the stock price of the acquirer on the agreement date. Consequently, if the stock price of the acquirer is high on the agreement date, the acquirer will issue few shares to pay for the cost of acquiring the target. The inverse relation between the stock price and the stock swap ratio gives the acquirer incentives to manage earnings upwards in order to inflate its stock price prior to the merger agreement. While extant literature provides mixed results as to whether firms which pay for their acquisitions using stock engage in earnings management by manipulating accruals, there is scant literature on acquiring firms and real activities manipulation. Although prior studies use pre-SOX data to examine the earnings management behavior of US acquiring firms, I focus on the post-SOX period when firms have more incentives to manipulate real activities. Even though acquiring firms have incentives to inflate earnings in order to reduce the cost of acquisition, the board of directors and the audit committee may prevent managers from manipulating real activities. Therefore, the two research questions that I address in this study are: (1) do firms which finance their acquisitions primarily with stock manipulate real activities in order to increase their stock price in the fiscal year prior to the merger announcement than firms which finance their acquisitions with cash? (2) how do directors' characteristics affect the ability of managers of acquiring firms to manipulate real operations?
Book Synopsis Earnings Management and the Market Performance of Acquiring Firms by : Henock Louis
Download or read book Earnings Management and the Market Performance of Acquiring Firms written by Henock Louis and published by . This book was released on 2004 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Earnings Management in Takeovers of Privately Held Targets by : Bok Baik
Download or read book Earnings Management in Takeovers of Privately Held Targets written by Bok Baik and published by . This book was released on 2009 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate patterns of earnings management by the acquiring firm in a merger, considering both the form of payment and the target firm's listing status. We find that the acquiring firm is more likely to report income-increasing abnormal accruals when it uses stock to acquire a privately held target. The bidder's abnormal accruals are also higher when it acquires a privately held target operating in a different industry and when it acquires a smaller target. These results suggest that greater estimation risk in the valuation of an acquisition target motivates the bidder to avoid overpayment by manipulating earnings upward prior to the merger. We also find that for a bidder acquiring a privately held target, stock returns around the merger announcement are negatively related to the abnormal accruals, but long-term returns show no relation to the abnormal accruals. Thus, it appears that investors price the bidder's earnings management at the time of the acquisition, and we find no evidence of a delayed market reaction or price correction.
Book Synopsis Earnings Management, M & A and Bank Stock Performance: Evidence From Taiwan by :
Download or read book Earnings Management, M & A and Bank Stock Performance: Evidence From Taiwan written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: During the past five years, fourteen financial holding companies have been founded by stock for stock mergers corresponding to the policies and deregulations in Taiwan. Among these M & As transactions, the exchange ratio for each combination, which is determined by the reported earnings in both acquiring and acquired firms, affects the success of the merger most. Therefore, our research focuses on whether financial institutions manage their reported earnings in order to get more favorable price for maximizing their shareholders wealth. From empirical results in Taiwan banking industry, we find (1) that the degree of earnings management is much higher in the period prior to M & As announcements given financial institutions in Taiwan are used to manipulating earnings at usual times, (2) that those financial institutions with higher degree of earnings management indeed get more favorable exchange ratios within M & As transactions relative to those with lower degree of earnings management for both acquiring and acquired companies. We also make an investigation for investors reactions toward behaviors of earnings management. By focusing on the sample of Taiwan financial holding companies, empirical results show that market investors will not punish those financial institutions obtaining better exchange ratios by manipulating reported earnings in the market since they can see through managers tricks on reported earnings.
Book Synopsis Earnings Management by Acquiring Firms by : Aref Mahdavi Ardekani
Download or read book Earnings Management by Acquiring Firms written by Aref Mahdavi Ardekani and published by LAP Lambert Academic Publishing. This book was released on 2013 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Stock Payment Acquirer's Pre-Acquisition Earnings Management and Its Post-Acquisition Performance by : Pascal Alphonse
Download or read book Stock Payment Acquirer's Pre-Acquisition Earnings Management and Its Post-Acquisition Performance written by Pascal Alphonse and published by . This book was released on 2017 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Earnings Management in Firms Seeking to Be Acquired by : Seraina C. Anagnostopoulou
Download or read book Earnings Management in Firms Seeking to Be Acquired written by Seraina C. Anagnostopoulou and published by . This book was released on 2015 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Earnings Management as Predictor of Acquisition Probability by : Magdalena Pikula
Download or read book Earnings Management as Predictor of Acquisition Probability written by Magdalena Pikula and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Searching for the Motives and Effectiveness of Chinese Mergers and Acquisitions by : Xiaokun Wang
Download or read book Searching for the Motives and Effectiveness of Chinese Mergers and Acquisitions written by Xiaokun Wang and published by Open Dissertation Press. This book was released on 2017-01-27 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "Searching for the Motives and Effectiveness of Chinese Mergers and Acquisitions" by Xiaokun, Wang, 王曉坤, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of the thesis entitled Searching for the Motives and Effectiveness of Chinese Mergers and Acquisitions Submitted By Xiaokun Wang For the Degree of Doctor of Philosophy at the University of Hong Kong in June 2007 This thesis researches the motives and effectiveness of Chinese mergers and acquisitions by analyzing the relationship between corporate governance, earnings management and the performance and valuation of acquiring firms. First, we summarize the basic characteristics of M&As in Chinese listed companies such as the yearly, regional and industry distributions, the type of acquisitions and method of payment. It is obvious that acquisitions increase with time and have penetrated in every industry in China. Furthermore, the regional economic development only plays a part role in determining the frequency of acquisitions by listed companies. Overall, acquirers in Chinese stock markets mainly use cash to purchase shares of non-listed target firms, which usually have relevant operations or products and locate in the same province with acquirers. Then, we review the relevant literature in the aspects of the performance and valuation of acquiring firms, the motives of acquisitions, corporate IIgovernance and earnings management. Basing this, we propose two hypotheses. Hypothesis I postulates that if M&As are driven by the synergy motive, the long-term performance and valuation of acquiring firms will be enhanced significantly, and corporate governance of acquiring firms will be improved significantly and has positive effect on the long-term performance and valuation. Hypothesis II assumes if M&As are driven by the agency or hubris motive, the long-term performance and valuation of acquiring firms will decrease significantly, and earnings management by managers will be obvious and only has significantly effect on the short-term performance and valuation. Using a sample of 618 acquisitions in Chinese listed companies, we test these hypotheses. We use three groups of indicators including the market performance, operating performance and market valuation to measure the effectiveness of M&As. In each group, the most representative and effective variables are selected and computed rigorously. We also employ the robust methods such as Principal Component Analysis to measure the corporate governance and earnings management of acquiring firms. The empirical evidence suggests the market performance, operating performance and market valuation of acquiring firms in Chinese stock markets decrease significantly after the acquisition. Corporate governance of acquiring firms is not improved after the acquisition and has no significant effect on the market performance, operating performance and market valuation. However, earnings management of acquiring firms is obvious and has significantly positive effect on the short-term operating performance and market performance, but significantly negative effect on the market valuation. Therefore, M&As in Chinese listed companies are mainly driven by the agency or hubris motive, and the synergy effect is not realized basically. III DOI: 10.5353/th_b3848181 Subjects: Corporate governance Organizational effectiveness Corporate profits - Management Consolidation and merger of corporations - China
Book Synopsis 2020 Mergerstat Review by : FACTSET MERGERSTAT.
Download or read book 2020 Mergerstat Review written by FACTSET MERGERSTAT. and published by BVResources. This book was released on 2020-04-25 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The FactSet Mergerstat Review is the cornerstone of any mergers and acquisitions library. This must-have resource delivers comprehensive rosters, data and statistics on merger and acquisition (M&A) transactions that involve U.S. companies, including privately held, publicly traded and cross-border transactions, and also lists unit divestitures, management buyouts, and certain asset sales.
Book Synopsis Accounting for M&A by : Amir Amel-Zadeh
Download or read book Accounting for M&A written by Amir Amel-Zadeh and published by Routledge. This book was released on 2020-04-29 with total page 331 pages. Available in PDF, EPUB and Kindle. Book excerpt: Spending on M&A has, in aggregate, grown so fast that it has even overtaken capital expenditure on increasing and maintaining physical assets. Yet McKinsey, the leading management consultancy, reports that "Anyone who has researched merger success rates knows that roughly 70% fail". The idea that businesses might be using huge and increasing sums of shareholders’ money for an activity that more often than not leads to failure calls into question the information on which M&A decisions are based. This book presents statistical studies, case material, and standard-setters’ opinions on company accounting before, during, and after M&A. It documents the manipulation of annual accounts by acquirers ahead of share for share bids, biased forecasts of post-merger earnings by bidders, and devices to flatter earnings when recording the deal. It explores the challenges for standard-setters in regulating information flows during and after M&A, and for account-users wishing to learn from financial statements how a deal has affected performance. Drawing on a wide range of international examples, this readable book is targeted not just at accounting specialists but at anyone who is comfortable reading the serious financial press, is intrigued by what is going on in the massive M&A market, and is concerned with achieving better-informed M&A. As such it might be of particular interest to business executives, lawyers, bankers, and investors involved in M&A as well as graduate students interested in researching or learning about the role of accounting in M&A.
Book Synopsis Acquiring Firms' Stock Returns by : Elias Raad
Download or read book Acquiring Firms' Stock Returns written by Elias Raad and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effects of the method of payment, change in leverage, and management equity ownership on the acquiring firm's stock returns around the initial announcement date of the merger. Results indicate that stockholders of mergers financed with stocks suffer significant losses. These losses are larger when management ownership is low and smaller in mergers that resulted in acquiring firm leverage decreases. Stockholders of acquiring firms involved in cash mergers gain significant abnormal returns, provided that acquiring firms increase their leverage and that managerial ownership is high. When management equity ownership is low, leverage has no effect on stock returns. When management ownership is high, mergers which resulted in acquiring firm leverage increases have significant positive effects, and those which resulted in acquiring firm leverage decreases have negative but insignificant effects.
Book Synopsis Do Targets Grab the Cash in Takeovers by : Domenico Campa
Download or read book Do Targets Grab the Cash in Takeovers written by Domenico Campa and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Extant research on Mergers and Acquisitions (M&A) provides evidence that acquirers under perform subsequent to the takeover completion. Such evidence is more unequivocal for acquirers that finance the acquisition by issuing equity relative to those that use cash. Current literature recognizes various reasons for this under performance, most of which suggest overvaluation of the acquirers and/or over payment for the targets at the time of acquisition announcement. Alternatively, this paper aims to investigate whether acquirers' post takeover abnormal return is also attributed to target firms' real and/or accrual earnings management. Our results indicate that, on average, targets manage earnings upwards using real transactions rather than accruals, during the year preceding the takeover. More specifically, we find evidence of earnings management through sales among targets of cash acquisitions and that it is significantly and negatively related to the post-acquisition performance of the acquirers. These findings suggest that there is an association between the method of financing in acquisitions and earnings management in target firms, which could impact the post-takeover performance of acquirers.
Book Synopsis Stock Splits as a Manipulation Tool by : Shourun Guo
Download or read book Stock Splits as a Manipulation Tool written by Shourun Guo and published by . This book was released on 2009 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that acquiring firms are more likely than non-acquiring firms to split their stocks before making acquisition announcements, especially when acquisitions are financed by stock and when the deals are large. Our findings support the hypothesis that some acquiring firms use stock splits to manipulate their equity values prior to acquisition announcements. Using earnings quality as a proxy for firms' intention to manipulate, we find that acquirers with low earnings quality (i.e., acquirers that are more likely to use stock splits to manipulate their stock values) have lower long-run stock returns compared with their benchmarks, especially when the deals are financed with stock. In contrast, acquirers with high earnings quality do not show that pattern. Our evidence complements and extends the findings in the literature that some acquirers manipulate their stock prices before stock-swap acquisitions (Erickson and Wang, 1999; Louis, 2004). This study suggests that target shareholders should use information such as earnings quality and stock splits to discriminate among acquirers and ensure that exchanges are conducted on fair terms.
Book Synopsis Earnings Management, Lawsuits, and Stock-for-Stock Acquirers' Market Performance by : Guojin Gong
Download or read book Earnings Management, Lawsuits, and Stock-for-Stock Acquirers' Market Performance written by Guojin Gong and published by . This book was released on 2008 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is a positive association between stock-for-stock acquirers' pre-merger abnormal accruals and post-merger lawsuits. The probability of lawsuits is also negatively associated with both the market reaction to the merger announcement and the post-merger announcement long-term abnormal returns, indicating that the market only partially anticipates the effects of post-merger announcement lawsuits. Not only are post-merger lawsuits associated with post-merger underperformance, but they are also likely drivers of the underperformance. The study suggests that it is important that investors not only undo the direct stock price effects of earnings management but also factor the contingent legal costs associated with earnings management.
