Does Target Firm's Earnings Management Affect Shareholder's Gains? Evidence from China

This study tests the hypothesis that the target firms are involved in earnings management activities in quarters leading to a takeover announcement. Using a sample of 3,455 Chinese listed firms that are targets of successful acquisitions over the period 2007–2020, and for a matched sample of non-tar...

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Bibliographic Details
Published inCredit and capital markets (Berlin) Vol. 55; no. 2; pp. 203 - 226
Main Authors Mughal, Azhar, Haque, Abdul, Zahid, Zohaib, Ali, Furman, Li, Zheng
Format Journal Article
LanguageEnglish
German
Published Berlin Duncker & Humblot 01.04.2022
Duncker & Humblot Gmbh
Subjects
Acquisitions & mergers
Announcements
Capital markets
Companies
Earnings
Earnings Management
Economics
Hypotheses
Literature reviews
Short-Term Gains
Stockholders
Takeovers
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Summary:This study tests the hypothesis that the target firms are involved in earnings management activities in quarters leading to a takeover announcement. Using a sample of 3,455 Chinese listed firms that are targets of successful acquisitions over the period 2007–2020, and for a matched sample of non-targets, we find that target firms manipulate earnings in quarters leading to the announcement date. Further, we find evidence of a negative relationship between earnings management and short-term gains to shareholders. Our result remains robust after controlling for various deal characteristics. The study also suggests that pre-merger earnings management in target firms is not fully anticipated by the market before the takeover announcement. We find no evidence of earnings management immediately after the announcement quarter.
ISSN:2199-1235
2199-1227
2199-1235
DOI:10.3790/ccm.55.2.203