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Earnings management by friendly takeover targets

Author

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  • Walid Ben‐Amar
  • Franck Missonier‐Piera

Abstract

Purpose - Accounting research has emphasized target and bidder managers' incentives to manipulate earnings during corporate control contests. However, prior studies examining earnings management by takeover targets have obtained mixed results. Moreover, the existing evidence is mainly based on US data and hostile mergers and acquisitions (M&A) transactions. The purpose of this study is to examine earnings management by friendly takeover targets in the year preceding the deal announcement in Switzerland. Design/methodology/approach - The paper examines earnings management practices of a sample of 50 Swiss firms that were targets of a friendly takeover proposition during the period 1990‐2002. Discretionary accruals are used as a measure of earnings management. It uses a matching approach and a cross‐sectional regression analysis to test the hypothesis of earnings management by takeover targets. Research limitations/implications - The paper expands and provides further international insights to the existing literature through the investigation of earnings management by takeover targets managers in a European setting and in a friendly corporate control environment. Originality/value - These empirical findings document the existence of a significant downward earnings management during the year preceding the transaction. These results suggest that earnings management incentives may differ between negotiated friendly and hostile disciplinary transactions.

Suggested Citation

  • Walid Ben‐Amar & Franck Missonier‐Piera, 2008. "Earnings management by friendly takeover targets," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 4(3), pages 232-243, June.
    • Handle: RePEc:eme:ijmfpp:v:4:y:2008:i:3:p:232-243
    DOI: 10.1108/17439130810878811
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    Citations

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    Cited by:

    1. Campa, Domenico & Hajbaba, Amir, 2016. "Do targets grab the cash in takeovers: The role of earnings management," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 56-64.
    2. Perafán-Peña, Héctor Fabio & Gill-de-Albornoz, Belén & Giner, Begoña, 2022. "Earnings management of target firms and deal premiums: The role of industry relatedness," The British Accounting Review, Elsevier, vol. 54(2).
    3. Mughal, Azhar & Tao, Qizhi & Sun, Yicheng & Xiang, Xueman, 2021. "Earnings management at target firms and the acquirers’ performance," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 384-404.
    4. Kamel Touhami & Karim Mhedhbi, 2014. "La Gestion des résultats comptables par les dirigeants de l’acquéreur en période de pré-acquisition," Post-Print hal-01899494, HAL.
    5. Anagnostopoulou, Seraina C. & Tsekrekos, Andrianos E., 2013. "Do firms that wish to be acquired manage their earnings? Evidence from major European countries," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 57-68.
    6. Ahmad Hussein Juma’h, 2014. "The Materiality Concept: Implications for Managers and Investors," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 6(1), pages 159-168, April.
    7. Anagnostopoulou, Seraina C. & Tsekrekos, Andrianos E., 2015. "Earnings management in firms seeking to be acquired," The British Accounting Review, Elsevier, vol. 47(4), pages 351-375.

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