Abnormal Accruals and Managerial Intent: Evidence from the Timing of Merger Announcements and Completions
51 Pages Posted: 18 Jan 2014 Last revised: 20 Dec 2014
Date Written: September 1, 2014
We examine the extent to which managers report opportunistically prior to corporate events by analyzing the association between the timing of stock swap announcements and completions and acquirers’ reporting behaviors. Using the timing of merger announcements and completions to infer managerial intent, we show that stock-for-stock acquirers’ reporting behaviors are opportunistic. More specifically, we show that stock-for-stock acquirers that inflate earnings the most tend to announce mergers on Fridays, while distancing some of their earnings management activities from the merger announcement date. The negative association between the post-merger announcement market performance and pre-merger announcement abnormal accruals is more pronounced for Friday announcers than for non-Friday announcers. Furthermore, the differential pre-merger abnormal accruals across Friday and non-Friday announcers are observed mainly when the announcement date is relatively close to the completion date. Overall, the evidence supports the notion that pre-acquisition abnormal accruals are related to deliberate opportunistic managerial decisions.
Keywords: Abnormal accruals, M&A, Earnings management, Managerial opportunism, Investor inattention, Long-run returns, Friday effect
JEL Classification: M41, G14, G34
Suggested Citation: Suggested Citation