The determinants of earnings management by the acquirer: The case of french corporate takeovers.

Abstract

This paper analyses the determinants of earnings management by the acquirer of 60 takeover-bids that occurred between 1998 and 2008 on the French market. Four main findings are shown in this study. First, we find strong evidence that bidder firms manipulate earnings prior to takeovers suggesting that target managers have incentive to detect earnings manipulation to ensure the interests of the target shareholders. Second, managers manipulate their earnings either downward or upward and regardless of the method of payment. Third, bidder toehold influences negatively and significantly the discretionary accruals. Finally, the relationship between discretionary accruals and managerial ownership is negatively significant. This practice favors a resource transfer to the bidder controlling shareholder at the expense of minority shareholders.Corporate takeover, Earnings management, Information asymmetry, Discretionary accruals, Method of payment