The role of corporate governance in shaping accruals manipulation prior to acquisitions. Issue 4 (6th June 2016)

• Record Type: Journal Article
• Authors: Lehmann, Nico
• Is Part Of: Accounting and business research. Volume 46:Issue 4(2016)
• Page Start: 327
• Page End: 364
• Publication Date: 2016-06-06
• Subjects: accrual-based earnings management -- corporate governance -- share-based M&A transactions -- managerial incentives; Accounting -- Periodicals; Accounting -- Research -- Periodicals; Business -- Periodicals; Comptabilité -- Périodiques; Comptabilité -- Recherche -- Périodiques; Affaires -- Périodiques; Accounting; Electronic journals; 658.15
• DOI: 10.1080/00014788.2015.1116969
• Languages: English
• ISSNs: 0001-4788

Abstract

Abstract : Based on stock swap transactions involving public acquirers originating from the UK between 1998 and 2011, this paper investigates the role of corporate governance in shaping accruals manipulation prior to stock swap deals. In contrast to common claims that strong corporate governance constrains accruals manipulation, my results show that well-governed acquirers engage more aggressively in income-increasing accruals manipulation than those with weak governance. This finding is consistent with a role of corporate governance that incentivises managerial actions in the interests of firms' shareholders. Overall, this finding highlights the setting-specific nature of the earnings management and corporate governance relation. My results are robust to different discretionary accrual models, differences in the firm's growth structure, merger and acquisition control variables, a control group of 100% cash acquirers, an analysis of buy-and-hold abnormal returns, and potential sample selection problems.