Acquiring to Sell: Acquisition Flippers and Earnings Management
51 Pages Posted: 10 May 2021
Date Written: May 7, 2021
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
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