Event-specific earnings management: additional evidence from US M&A pre-and post-SOX

Malek Alsharairi, Robert Dixon and Radhi Al-Hamadeen

Journal of Financial Reporting and Accounting, 2017, vol. 15, issue 1, 78-98

Abstract: Purpose - The purpose of this paper is to re-examine the motivation to manage earnings in US mergers and acquisitions (M&As) by investigating whether the enactment of Sarbanes-Oxley act (SOX) has affected pre-merger earnings management. Design/methodology/approach - The authors used a sample of over 700 completed M&As of US public firms during 1999-2008. Using quarterly reports, they tracked down earnings management during the four quarters preceding the deal and consequently drew inferences about the implications of SOX on interim reporting practices. Findings - We report evidence that in the post-SOX era, non-cash acquirers begin pre-merger upwards earnings management in an earlier quarter than in the pre-SOX era. Further, our evidence indicates that in the quarters prior to the takeover, targets engage in more aggressive upwards earnings management in the post-SOX era. Originality/value - Unlike what is anticipated regarding earnings management practices after SOX, the study reveals significant evidence of upward earnings management by firms engaging in M&A in post-SOX era.

Keywords: M&As; Earnings management; Abnormal accruals; Method of payment; Quarterly reports; Sarbanes Oxley; M41; M48; G34 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-11-2015-0097

DOI: 10.1108/JFRA-11-2015-0097

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