Earnings Management around UK Open Offers

40 Pages Posted: 4 Jun 2008

See all articles by Susanne Espenlaub

Susanne Espenlaub

University of Manchester - Manchester Business School

Abdullah Iqbal

University of Kent, Canterbury

Norman C. Strong

University of Manchester - Alliance Manchester Business School

Date Written: February 2007

Abstract

We examine the long run operating and stock price performance of UK open offer firms in the context of the earnings management hypothesis. We find that in the pre-offer period offer firms report significant improvements in their operating performance unrelated to cash flow performance. Results on return performance show that offer firms outperform various benchmarks in the pre-offer year but underperform up to four years after the offer. Regression results show that pre-offer discretionary current accruals predict the long-run post-offer return underperformance but do not predict the short-run reaction to SEO announcements. Our findings are more consistent with the earnings management hypothesis than with either the timing hypothesis or the managerial response hypothesis and suggest that investors do not take full account of the information available at the time of open offers.

Keywords: earnings management, open offers, SEOs, return performance, operating performance

JEL Classification: G14, G15, G24, G32, M41

Suggested Citation

Espenlaub, Susanne and Iqbal, Abdullah and Strong, Norman Charles, Earnings Management around UK Open Offers (February 2007). Available at SSRN: https://ssrn.com/abstract=1140605 or http://dx.doi.org/10.2139/ssrn.1140605

Susanne Espenlaub

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Abdullah Iqbal

University of Kent, Canterbury ( email )

Canterbury, Kent CT2 7PE
United Kingdom

Norman Charles Strong (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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