The Effect of Earnings Management on the Asymmetric Timeliness of Earnings

Abstract:  Is earnings management affecting (driving) the measures of earnings conservatism? Ball et al. (2000) point out that the asymmetry in the recognition of good and bad news in earnings (faster recognition of bad news: earnings conservatism) is more pronounced in common-law than in code-law based accounting regimes. However, comparative studies on earnings conservatism in Europe have failed to identify significant differences between common-law and code-law based countries. We argue that in code-law based countries managers have incentives to reduce earnings consistently. This enhances the association between earnings and returns in bad news periods. We find that after controlling for discretionary accruals, the differential earnings response to bad news in Germany and France decreases significantly. Copyright Blackwell Publishers Ltd, 2005.

Do acquirers manage earnings prior to a share for share bid?

Earnings management by acquirers ahead of share for share bids may affect whether a bid succeeds, and hence which management team controls the target's assets, as well as the distribution of gains between target and acquirer shareholders. This paper tests for such earnings management for the UK, the world's second largest takeover market, in the period 1997-2001 when M&A reached record levels and share for share deals came to account for the majority of expenditure. Using a range of approaches originating in Jones' model, the paper finds evidence consistent with earnings management ahead of share-financed bids