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Earnings management, lawsuits, and stock-for-stock acquirers' market performance

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  • Gong, Guojin
  • Louis, Henock
  • Sun, Amy X.

Abstract

There is a positive association between stock-for-stock acquirers' pre-merger abnormal accruals and post-merger announcement lawsuits. The market only partially anticipates the effects of post-merger announcement lawsuits at the merger announcement and the post-merger announcement long-term market underperformance is largely limited to litigated acquisitions. Overall, the evidence suggests that it is important that investors not only undo the direct stock price effects of earnings management but also factor the contingent legal costs associated with earnings management.

Suggested Citation

  • Gong, Guojin & Louis, Henock & Sun, Amy X., 2008. "Earnings management, lawsuits, and stock-for-stock acquirers' market performance," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 62-77, September.
    • Handle: RePEc:eee:jaecon:v:46:y:2008:i:1:p:62-77
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