Earnings management and corporate spinoffs

Ying Lin () and Kenneth Yung ()

Review of Quantitative Finance and Accounting, 2014, vol. 43, issue 2, 275-300

Abstract: In this study we examine whether firms manage earnings before pursuing corporate spinoffs. Using a sample of 226 completed spinoffs between 1985 and 2005, we find strong evidence of pre-spinoff earnings management among parent firms involved in non-focus-increasing spinoffs. We also find higher levels of earnings management among parent firms that have a higher level of information asymmetry prior to spinoff announcements. Our regression results show a significant negative relation between income-increasing earnings management and the announcement period returns for non-focus-increasing spinoffs. In addition, a significant positive relation is found between income-increasing earnings management and the announcement period returns for focus-increasing spinoffs. The results suggest that income-increasing earnings management sends out negative signals about non-focus-increasing spinoffs but positive signals about focus-increasing spinoffs. Copyright Springer Science+Business Media New York 2014

Keywords: Corporate spinoff; Divestiture; Focus; Earnings management; Accounting accruals; G14; M41 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11156-013-0372-x

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