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

dc.contributorAalto-yliopistofi
dc.contributorAalto Universityen
dc.contributor.authorKlobut, Henrik
dc.contributor.departmentRahoituksen laitosfi
dc.contributor.departmentDepartment of Financeen
dc.contributor.schoolKauppakorkeakoulufi
dc.contributor.schoolSchool of Businessen
dc.date.accessioned2014-03-17T07:42:51Z
dc.date.available2014-03-17T07:42:51Z
dc.date.dateaccepted2013-02-10
dc.date.issued2014
dc.description.abstractOBJECTIVES 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.ethesisid13529
dc.format.extent77
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/12750
dc.identifier.urnURN:NBN:fi:aalto-201403171570
dc.language.isoenen
dc.locationP1 Ifi
dc.programme.majorFinanceen
dc.programme.majorRahoitusfi
dc.subject.heleconrahoitus
dc.subject.heleconfinancing
dc.subject.heleconyrityskaupat
dc.subject.heleconcorporate acquisitions
dc.subject.heleconyritysjärjestelyt
dc.subject.heleconcompany restructuring
dc.subject.helecontulos
dc.subject.heleconreturn
dc.subject.heleconosakkeet
dc.subject.heleconshares
dc.subject.heleconhinnat
dc.subject.heleconprices
dc.subject.heleconinformaatio
dc.subject.heleconinformation
dc.subject.helecontuotto
dc.subject.heleconrate of return
dc.subject.heleconIso-Britannia
dc.subject.heleconUnited Kingdom
dc.subject.keywordmergers and acquisitions
dc.subject.keywordearnings management
dc.subject.keywordaccruals
dc.subject.keywordstock price
dc.subject.keywordasymmetric information
dc.subject.keywordabnormal returns
dc.subject.keywordaccounting standards
dc.titleDo companies manage earnings ahead of stock-for-stock acquisitions? Recent evidence from the UKen
dc.typeG2 Pro gradu, diplomityöfi
dc.type.dcmitypetexten
dc.type.ontasotMaster's thesisen
dc.type.ontasotPro gradu tutkielmafi
local.aalto.idthes13529
local.aalto.openaccessno

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