Takeover Vulnerability and Pre-Emptive Earnings Management

Tunyi, Abongeh; Agyei-Boapeah, Henry; Yang, Junhong; Machokoto, Michael

Abstract

We explore whether firms that are vulnerable to takeovers pre-emptively manage earnings in anticipation of such events. We find a positive relationship between firms' vulnerability to takeovers and their propensity to manage earnings, mainly through the manipulation of real activities. We consider two motivations for firms' pre-emptive earnings management behavior; (1) to deter future takeovers and (2) to optimize M&A outcomes. Concerning the former, we document evidence consistent with entrenched managers using real earnings management to deter or delay future takeovers. Concerning the latter, we find evidence suggesting that, contingent on receiving takeover bids, vulnerable firms that pre-emptively manipulate real activities extract comparatively higher merger premiums. Overall, our findings suggest that managers of vulnerable firms pre-emptively manage earnings to purposefully delay the timing and optimize the outcomes of prospective takeovers.

Citation

Tunyi, A., Agyei-Boapeah, H., Yang, J., & Machokoto, M. (2024). Takeover Vulnerability and Pre-Emptive Earnings Management. European Accounting Review, 33(2), 677-711. https://doi.org/10.1080/09638180.2022.2116064

• Journal Article Type: Article
• Acceptance Date: Aug 7, 2022
• Online Publication Date: Sep 5, 2022
• Publication Date: 2024
• Deposit Date: Aug 10, 2022
• Publicly Available Date: Mar 6, 2024
• Journal: European Accounting Review
• Print ISSN: 0963-8180
• Electronic ISSN: 1468-4497
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 33
• Issue: 2
• Pages: 677-711
• DOI: https://doi.org/10.1080/09638180.2022.2116064
• Keywords: Business, Management and Accounting (miscellaneous); Accounting; Business and International Management; Economics, Econometrics and Finance (miscellaneous); Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/9902509
• Publisher URL: https://www.tandfonline.com/doi/full/10.1080/09638180.2022.2116064