Accrual-Based Earnings Management in Cross-Border Mergers and Acquisitions: The Role of Institutional Differences and Geographic Distance

Ioannis Dokas (), Christos Leontidis and Evanthia K. Zervoudi
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Ioannis Dokas: Department of Economics, Democritus University of Thrace, 69100 Komotini, Greece
Christos Leontidis: Department of Economics, Democritus University of Thrace, 69100 Komotini, Greece
Evanthia K. Zervoudi: Department of Business Administration, University of the Aegean, 82100 Chios, Greece

JRFM, 2025, vol. 18, issue 2, 1-26

Abstract: This study investigates how target firms’ accrual-based earnings management affects the likelihood of cross-border mergers and acquisitions completion failure, emphasizing the roles of corruption, legal efficiency, and geographic distance. Using a sample of 496 European target firms involved in cross-border mergers and acquisitions, the analysis reveals a positive association between earnings management and deal withdrawal. While corruption and legal-system efficiency differences alone show no direct impact, their interaction with earnings management increases the likelihood of deal failure, particularly when target firms operate in more corrupt and less legally efficient countries than their acquirers. Geographic distance demonstrates weak evidence of a negative effect on deal completion when combined with increased earnings management levels. These findings underscore the critical role of earnings management in cross-border mergers and acquisitions outcomes, especially under high information asymmetry stemming from institutional differences.

Keywords: accrual earnings management; cross-border mergers and acquisitions; mergers and acquisitions completion failure; corruption; legal differences (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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