Earnings Management of Target Firms and Deal Premiums: The Role of Industry Relatedness

59 Pages Posted: 14 Aug 2018 Last revised: 17 Oct 2020

See all articles by Hector Fabio Perafan-Peña

Hector Fabio Perafan-Peña

Universidad ICESI

Belen Gill-de-Albornoz

Jaume I University - Department of Finance and Accounting

Begoña Giner

University of Valencia

Date Written: May 31, 2020

Abstract

This paper contributes to the merger and acquisitions (M&A) literature by providing evidence on the role of industry relatedness in the association between the earnings management (EM) practices of the target firm before the deal and the premium offered by the acquirer. We argue that familiarity with accounting policies and practices of the industry is a crucial factor that helps acquirers to see through the targets’ EM practices. Our results support this prediction since we observe that the association between the target’s signed discretionary accruals and the premium offered is negative (positive) in intra-industry (inter-industry) M&A.

Keywords: Mergers and Acquisitions (M&As), Earnings Management (EM), Bid Premiums, Industry Relatedness

JEL Classification: G34, M41

Suggested Citation

Perafan-Peña, Hector Fabio and Gill de Albornoz Noguer, Belen and Giner Inchausti, Begoña, Earnings Management of Target Firms and Deal Premiums: The Role of Industry Relatedness (May 31, 2020). Available at SSRN: https://ssrn.com/abstract=3222515 or http://dx.doi.org/10.2139/ssrn.3222515

Hector Fabio Perafan-Peña (Contact Author)

Universidad ICESI ( email )

Calle 18 #122-135
A.A. 25608
Cali
Colombia

Belen Gill de Albornoz Noguer

Jaume I University - Department of Finance and Accounting ( email )

Campus del Riu Sec
12081 Castello de la Plana
Spain

HOME PAGE: http://www.uji.es

Begoña Giner Inchausti

University of Valencia ( email )

Departament de Comptabilitat Edifici Departamental Oriental
E-46022 Valencia
Spain

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