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Real activities manipulation in stock-for-stock mergers

Author

Listed:
  • Olukemi Fasipe

    (Northern Alberta Institute of Technology)

  • Huey-Lian Sun

    (Morgan State University)

Abstract

This study examines whether firms that primarily use stock of their companies to pay for acquisitions manipulate real activities in the year preceding the merger announcement to inflate earnings. Using post-SOX data of mergers and acquisitions completed between 2003 and 2013, the findings of this study show that acquiring firms in stock-for-stock mergers inflate earnings by cutting discretionary expenses, manipulating sales to increase revenue, and overproducing goods to reduce the cost of goods sold.

Suggested Citation

  • Olukemi Fasipe & Huey-Lian Sun, 2020. "Real activities manipulation in stock-for-stock mergers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(3), pages 570-586, July.
    • Handle: RePEc:spr:jecfin:v:44:y:2020:i:3:d:10.1007_s12197-019-09500-9
    DOI: 10.1007/s12197-019-09500-9
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    References listed on IDEAS

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