Accrual and real earnings management by rumored takeover targets

Frederick Davis and Hamed Khadivar

International Review of Financial Analysis, 2024, vol. 92, issue C

Abstract: In this study we find evidence of income-increasing accrual and real earnings management occurring up to two quarters prior to the initial publication of a takeover rumor. We also find that post-rumor earnings management depends on both its form (accrual or real) as well as whether the rumor eventuates, observing income-decreasing accrual earnings management when the rumor is not accurate. Moreover, cumulative measures of earnings management for the month prior to the rumor are significant predictors of rumor accuracy, while being negatively correlated to rumor date and long-run returns. We interpret results as being consistent with rational expectations theory and note how managerial motivations may adapt to the degree of takeover likelihood.

Keywords: Earnings management; Earnings manipulation; Takeover rumors; Takeover announcements; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G14 G34 G38 M41 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:92:y:2024:i:c:s1057521924000371

DOI: 10.1016/j.irfa.2024.103105

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