Acquiring to Sell: Acquisition Flippers and Earnings Management

51 Pages Posted: 10 May 2021

See all articles by Lyungmae Choi

Lyungmae Choi

City University of Hong Kong (CityU)

Shawn X. Huang

Arizona State University (ASU) - School of Accountancy

Min Kim

Sogang University

Date Written: May 7, 2021

Abstract

This study explores an interesting phenomenon in which some acquirers buy and own targets for a relatively short period of time and then “flip” or resell these targets to other companies for profit. We show that acquisition flippers engage in earnings management to improve the appeal of flipped targets. In particular, subsequent acquirers of flipped targets are more likely to restate earnings downward post-acquisition than acquirers of non-flipped targets. For available flipped targets, we find they have larger abnormal accruals than non-flipped targets. Additional analyses show that acquiring flipped targets is detrimental to subsequent acquirers, as the acquirers experience larger declines in operating performance, have a higher likelihood of goodwill impairment, and are less likely to acquire flipped targets in the future than acquirers of non-flipped targets. Cross-sectional tests reveal more (less) pronounced effects among targets flipped by serial flippers and professional investors (among subsequent acquirers with high-quality M&A advisors).

Keywords: Mergers and Acquisitions, Acquisition Flipper, Flipping, Earnings Management

JEL Classification: G32, G34, M40, M41

Suggested Citation

Choi, Lyungmae and Huang, Shawn X. and Kim, Min, Acquiring to Sell: Acquisition Flippers and Earnings Management (May 7, 2021). Available at SSRN: https://ssrn.com/abstract=3841732 or http://dx.doi.org/10.2139/ssrn.3841732

Lyungmae Choi

City University of Hong Kong (CityU) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Shawn X. Huang (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Min Kim

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)

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