Abnormal Accruals and Managerial Intent: Evidence from the Timing of Merger Announcements and Completions

Posted: 18 Dec 2014

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Amy X. Sun

University of Houston

Multiple version iconThere are 2 versions of this paper

Date Written: December 18, 2014

Abstract

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: M&A, Abnormal accruals, Real earnings management, Managerial opportunism, Investor inattention, Long-run returns, Friday effect

JEL Classification: M41, G14, G34

Suggested Citation

Louis, Henock and Sun, Amy X., Abnormal Accruals and Managerial Intent: Evidence from the Timing of Merger Announcements and Completions (December 18, 2014). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2539973

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Amy X. Sun

University of Houston ( email )

Bauer College of Business
334 Melcher Hall, 390H
Houston, TX 77204
United States
7137435682 (Phone)

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