A COMPARISON OF EARNINGS MANAGEMENT BETWEEN DOMESTIC AND CROSS-BORDER MERGERS

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Amy Yueh-Fang Ho

DOI:10.22495/cocv7i4p2

Abstract

This study examines how U.S. acquiring firms managed their earnings by means of discretionary accruals prior to the announcement of stock-for-stock domestic and cross-border mergers during the period 1980 to 2002. The objective of this study is to determine whether earnings management is exacerbated in cross-border mergers according to the informational asymmetry hypothesis. The results show that that acquiring firms tend to manage earnings upward prior to stock swap domestic takeovers. In addition, the results reveal some evidence of earnings management prior to stock swap cross-border takeovers. However, the empirical results exhibit no significant distinction in earnings management between the domestic and cross-border mergers. Despite the possible existence of asymmetric information associated with cross-border takeover activities, the international mergers and acquisitions do not facilitate managers to engage in more aggressive earnings management. The findings suggest that the higher degree of information asymmetry in cross-border mergers does not contribute to a higher degree of earnings management.

Keywords: Earnings Management, Mergers and Acquisitions, Takeovers, Asymmetric Information

How to cite this paper: Ho, A. Y.-F. (2010). A comparison of earnings management between domestic and cross-border mergers. Corporate Ownership & Control, 7(4), 19-33. http://doi.org/10.22495/cocv7i4p2