Open AccessTakeovers And Incentives For Earnings Management: An Empirical Analysis
Author(s) -
Cintia M. Easterwood
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v14i1.5726
Subject(s) - accrual , quarter (canadian coin) , earnings management , earnings , sample (material) , accounting , incentive , control sample , control (management) , empirical evidence , business , economics , demographic economics , management , microeconomics , philosophy , chemistry , food science , archaeology , chromatography , epistemology , history
This study tests the hypothesis that managers of firms that are targets of takeovers systematically increase reported earnings in the quarters immediately preceding and following initiation of the takeover attempt. Using both a modified version of the Jones method and the DeAngelo method, discretionary accounting accruals are examined for a sample of 100 firms that were targets of tender offers between 1985 and 1989, inclusive, and for a control group of nontargets. Results for the quarter ended prior to initiation support the hypothesis. Additional tests performed on the sub-samples of hostile and friendly takeover targets indicate that the results obtained for the sample as a whole are primarily due to the hostile takeover targets. No evidence of earnings management is found in the quarter ended subsequent to initiation.