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

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

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.

Suggested Citation

  • Perafán-Peña, Héctor Fabio & Gill-de-Albornoz, Belén & Giner, Begoña, 2022. "Earnings management of target firms and deal premiums: The role of industry relatedness," The British Accounting Review, Elsevier, vol. 54(2).
    • Handle: RePEc:eee:bracre:v:54:y:2022:i:2:s0890838921000640
    DOI: 10.1016/j.bar.2021.101038
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    Cited by:

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    3. Perafán-Peña, Héctor Fabio & Gill-de-Albornoz Noguer, Belén & Giner, Begoña, 2024. "Targets’ earnings management and ownership decisions in M&A: Can less be more ?," Finance Research Letters, Elsevier, vol. 62(PA).

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    More about this item

    Keywords

    Mergers and acquisitions; Earnings management; Bid premium; Industry relatedness;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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