Discussion of Do Acquirers Manage Earnings Prior to a Share for Share Bid

Botsari and Meeks (2008) (hereafter BM) replicate the analysis of Erickson and Wang (1999) using a sample of UK acquirers. Empirical tests seek to determine whether bidders in share swap acquisitions manipulate earnings upwards during the preacquisition period in an attempt to inflate their share price and hence minimise the number of shares issued in exchange for the target. BM present results consistent with this prediction and as such their findings add to a growing body of evidence highlighting the importance of capital market-driven incentives for earnings management. My discussion focuses on the following aspects of their study. First, I examine the theory underlying BM’s main prediction and review their empirical findings. Then I discuss aspects of BM’s research design from the perspective of both their study and the broader earnings management literature.