Abstract

http://ssrn.com/abstract=1273464
 
 

References (40)



 
 

Citations (4)



 


 



Do Acquiring Firms Manage Earnings?


Raunaq S. Pungaliya


Sungkyunkwan University (SKK) Graduate School of Business

Anand M. Vijh


University of Iowa - Department of Finance

May 22, 2009


Abstract:     
We investigate possible earnings management by inflating discretionary accruals in a sample of 1,719 cash acquirers and 895 stock acquirers during 1989-2005. Following previous literature, we document higher ROA-matched discretionary accruals for stock acquirers than for cash acquirers. However, simulation evidence with quarterly data shows that ROA-matched discretionary accruals are misspecified for both high-growth and low-growth firms. This is relevant to the current investigation because the median sales growth rate equals 12.1% for cash acquirers and 38.5% for stock acquirers (besides similar differences in other growth measures). We propose a new discretionary accrual measure that controls for both ROA and sales growth. This measure is well-specified and powerful in detecting earnings management in stratified random samples, and it leads to an insignificant difference between discretionary accruals of cash and stock acquirers. Other tests of acquirer incentives to manage earnings, market reaction to earnings management, and time delay between earnings announcement and merger announcement strengthen the evidence against earnings management attributed to stock acquisitions.

Number of Pages in PDF File: 46

Keywords: Earnings management, mergers, acquisitions, discretionary accruals, abnormal accruals, sales growth, accounting fraud

JEL Classification: G34, M41, M43, G24, G14

working papers series


Download This Paper

Date posted: September 29, 2008 ; Last revised: May 25, 2009

Suggested Citation

Pungaliya, Raunaq S. and Vijh, Anand M., Do Acquiring Firms Manage Earnings? (May 22, 2009). Available at SSRN: http://ssrn.com/abstract=1273464 or http://dx.doi.org/10.2139/ssrn.1273464

Contact Information

Raunaq S. Pungaliya (Contact Author)
Sungkyunkwan University (SKK) Graduate School of Business ( email )
53 Myeongnyun-dong 3-ga Jongno-ju
Seoul, 110-745
Korea
Anand M. Vijh
University of Iowa - Department of Finance ( email )
Iowa City, IA 52242-1000
United States
319-335-0921 (Phone)
319-335-3609 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 1,514
Downloads: 379
Download Rank: 41,432
References:  40
Citations:  4

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.360 seconds