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Do Acquirers Manage Earnings Prior to a Share for Share Bid?

Authors

  • Antonia Botsari,

    1. The authors are respectively Assistant Professor of Accounting, Warwick Business School, University of Warwick; and Professor of Financial Accounting, Judge Business School, University of Cambridge. They are grateful for constructive suggestions from participants at the 2007 JBFA Capital Markets Conference, the European Accounting Association Annual Congresses and the British Accounting Association Annual Conferences; as well as seminar participants at the University of Cambridge, the University of Lancaster, and the University of Warwick. The authors have benefited particularly from the comments and suggestions of Colin Clubb, Gishan Dissanaike, an anonymous referee, and JBFA editors Peter Pope and Martin Walker.
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  • Geoff Meeks

    Corresponding author
    1. The authors are respectively Assistant Professor of Accounting, Warwick Business School, University of Warwick; and Professor of Financial Accounting, Judge Business School, University of Cambridge. They are grateful for constructive suggestions from participants at the 2007 JBFA Capital Markets Conference, the European Accounting Association Annual Congresses and the British Accounting Association Annual Conferences; as well as seminar participants at the University of Cambridge, the University of Lancaster, and the University of Warwick. The authors have benefited particularly from the comments and suggestions of Colin Clubb, Gishan Dissanaike, an anonymous referee, and JBFA editors Peter Pope and Martin Walker.
      * Address for correspondence: Antonia Botsari, Accounting Group, Warwick Business School, University of Warwick, Coventry CV4 7AL, UK.
      e-mail: Antonia.Botsari@wbs.ac.uk
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* Address for correspondence: Antonia Botsari, Accounting Group, Warwick Business School, University of Warwick, Coventry CV4 7AL, UK.
e-mail: Antonia.Botsari@wbs.ac.uk

Abstract

Abstract:  Earnings management by acquirers ahead of share for share bids may affect whether a bid succeeds, and hence which management team controls the target's assets, as well as the distribution of gains between target and acquirer shareholders. This paper tests for such earnings management for the UK, the world's second largest takeover market, in the period 1997–2001 when M&A reached record levels and share for share deals came to account for the majority of expenditure. Using a range of approaches originating in Jones' model, the paper finds evidence consistent with earnings management ahead of share-financed bids.

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