Do companies manage earnings ahead of stock-for-stock acquisitions? Recent evidence from the UK

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en
dc.contributor.author Klobut, Henrik
dc.date.accessioned 2014-03-17T07:42:51Z
dc.date.available 2014-03-17T07:42:51Z
dc.date.issued 2014
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/12750
dc.description.abstract OBJECTIVES OF THE STUDY: In this thesis I study the earnings management phenomenon in conjunction with stock-for-stock acquisitions. I also examine certain acquirer and target company characteristics that have an effect on the magnitude of stock acquirers' discretionary accruals. The objective of this thesis is to expand academic understanding on earnings management and to provide explanations on management incentives to report adjusted figures ahead of acquisitions. Further, understanding the motives and magnitude of managed earnings helps academia, regulators and investors at large to better comprehend the acquirer underperformance puzzle. DATA AND METHODOLOGY: My sample consists of 231 stock-for-stock corporate acquisition deals conducted in the United Kingdom between 2005 and 2012, inclusively. The time period of my study accounts for both times of economic growth and decline. Further, the international setting of my thesis when studying earnings management in the UK expands the existing academic research, which has so far mainly focused on the US market. I use a variety of accounting and statistical models to estimate the magnitude of discretionary accruals for the acquirers, for which the Jones (1991) model provides the most important foundation. Further, with various ordinary least squares regression models I examine certain company and deal characteristics that have an effect on the magnitude of managed earnings as well as on acquirer cumulative abnormal returns obtained from the market model. Finally, I compare the findings from my main sample event companies to non-event companies control group to further validate the results. FINDINGS OF THE STUDY: I conclude that the earnings management models I use in this research are capable of detecting opportunistic earnings management in stock-for-stock acquiring companies prior to the deal announcements. Further, I find that acquirers using stock as the payment method for transactions manage earnings upwards ahead of their acquisition announcements in order to benefit from higher share price, which determines the total price paid for the target. One factor that has an increasing effect on pre-deal earnings management is subpar acquirer operating performance during reporting periods before the deal announcement. The negative relationship implies that as company profitability increases it resorts less to managing earnings. Conversely, a target company's relative size has an increasing effect on the acquirer pre-deal earnings management. Finally, acquirer abnormal returns around the deal announcement date are depressed partly due to pre-deal earnings management, which investors expect when a stock deal is announced. The negative relationship between the magnitude of pre-deal earnings management and the acquirer abnormal returns becomes more pronounced around a half a year after the deal is announced. en
dc.format.extent 77
dc.language.iso en en
dc.title Do companies manage earnings ahead of stock-for-stock acquisitions? Recent evidence from the UK en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.contributor.department Department of Finance en
dc.subject.keyword mergers and acquisitions
dc.subject.keyword earnings management
dc.subject.keyword accruals
dc.subject.keyword stock price
dc.subject.keyword asymmetric information
dc.subject.keyword abnormal returns
dc.subject.keyword accounting standards
dc.identifier.urn URN:NBN:fi:aalto-201403171570
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon yrityskaupat
dc.subject.helecon corporate acquisitions
dc.subject.helecon yritysjärjestelyt
dc.subject.helecon company restructuring
dc.subject.helecon tulos
dc.subject.helecon return
dc.subject.helecon osakkeet
dc.subject.helecon shares
dc.subject.helecon hinnat
dc.subject.helecon prices
dc.subject.helecon informaatio
dc.subject.helecon information
dc.subject.helecon tuotto
dc.subject.helecon rate of return
dc.subject.helecon Iso-Britannia
dc.subject.helecon United Kingdom
dc.ethesisid 13529
dc.date.dateaccepted 2013-02-10
dc.location P1 I fi


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