Earnings management of target firms and deal premiums: The role of industry relatedness

Héctor Fabio Perafán-Peña, Belén Gill-de-Albornoz and Begoña Giner

The British Accounting Review, 2022, vol. 54, issue 2

Abstract: This paper contributes to the merger and acquisitions (M&A) literature by providing evidence for the role of industry relatedness in the association between target firms' earnings management (EM) before the deal and the premium offered by the acquirer. We argue that familiarity with the industry's policies and practices is a crucial factor that helps acquirers to see through targets' EM. Our evidence supports this prediction in relation to accounting manipulation as we observe that the income increasing accrual manipulation of the target results in significantly higher premiums offered by acquirers in interindustry deals, which is not the case when targets and acquirers belong to the same industry.

Keywords: Mergers and acquisitions; Earnings management; Bid premium; Industry relatedness (search for similar items in EconPapers)
JEL-codes: G34 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:54:y:2022:i:2:s0890838921000640

DOI: 10.1016/j.bar.2021.101038

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