The Affect of Earnings Management by Target Firms on Acquiring Firms'' Subsequent Performance of Stock Price

• Main Authors: Jia-yi Chen, 陳佳怡
• Other Authors: Ming-Che Lu
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/13965538826244470164

碩士 === 朝陽科技大學 === 會計所 === 98 === I hypothesize that when the earnings management from target firms cheats acquiring firms into mergers or acquisitions, the subsequent operation performance of acquiring firms will fail to achieve market’s expectation, resulting in poor performance of stock price. I survey the public listed companies in USA between 2000 and 2007. In a sample of mergers & acquisitions completed, the relationship between the subsequent stock returns of acquiring firms and the targets’ earnings management variables, including abnormal accruals, abnormal cash flow from operations, abnormal production costs, and abnormal discretionary expenses, are explored by using pooled cross-sectional regressions. Empirical results reveal that after controlling other factors, (1) higher targets’ abnormal accruals significantly reduce subsequent abnormal returns of acquiring firms; (2) lower targets’ abnormal cash flows from operations significantly improve subsequent abnormal returns of acquiring firms; (3) lower targets’ abnormal discretionary expenses significantly reduce subsequent abnormal returns of acquiring firms; (4) targets’ abnormal production costs, however, are not significantly related to subsequent abnormal returns of acquiring firms. This study provides the evidences that target firms successfully cheat acquiring firms into mergers or acquisitions mainly through manipulating accruals upwards and cutting down discretionary expenses, consistent with related literatures of earnings management.