Event-specific earnings management: additional evidence from US M&A pre-and post-SOX. Issue 1 (10th April 2017)

• Record Type: Journal Article
• Authors: Alsharairi, Malek; Dixon, Robert; Al-Hamadeen, Radhi
• Is Part Of: Journal of financial reporting & accounting. Volume 15:Issue 1(2017)
• Page Start: 78
• Page End: 98
• Publication Date: 2017-04-10
• Subjects: M&As -- Earnings management -- Abnormal accruals -- Method of payment -- Quarterly reports -- Sarbanes Oxley; M41, M48, G34; Finance -- Research -- Periodicals; Accounting -- Research -- Periodicals; 657.3
• DOI: 10.1108/JFRA-11-2015-0097
• Languages: English
• ISSNs: 1985-2517

Abstract

Abstract : Purpose: The purpose of this paper is to re-examine the motivation to manage earnings in US mergers and acquisitions (M&As) by investigating whether the enactment of Sarbanes-Oxley act (SOX) has affected pre-merger earnings management. Design/methodology/approach: The authors used a sample of over 700 completed M&As of US public firms during 1999-2008. Using quarterly reports, they tracked down earnings management during the four quarters preceding the deal and consequently drew inferences about the implications of SOX on interim reporting practices. Findings: We report evidence that in the post-SOX era, non-cash acquirers begin pre-merger upwards earnings management in an earlier quarter than in the pre-SOX era. Further, our evidence indicates that in the quarters prior to the takeover, targets engage in more aggressive upwards earnings management in the post-SOX era. Originality/value: Unlike what is anticipated regarding earnings management practices after SOX, the study reveals significant evidence of upward earnings management by firms engaging in M&A in post-SOX era.