The role of corporate governance in shaping accruals manipulation prior to acquisitions

Nico Lehmann*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

10 Citations (Scopus)

Abstract

Based on stock swap transactions involving public acquirers originating from the UK between 1998 and 2011, this paper investigates the role of corporate governance in shaping accruals manipulation prior to stock swap deals. In contrast to common claims that strong corporate governance constrains accruals manipulation, my results show that well-governed acquirers engage more aggressively in income-increasing accruals manipulation than those with weak governance. This finding is consistent with a role of corporate governance that incentivises managerial actions in the interests of firms shareholders. Overall, this finding highlights the setting-specific nature of the earnings management and corporate governance relation. My results are robust to different discretionary accrual models, differences in the firm's growth structure, merger and acquisition control variables, a control group of 100% cash acquirers, an analysis of buy-and-hold abnormal returns, and potential sample selection problems.

Original languageEnglish
Pages (from-to)327-364
Number of pages38
JournalAccounting and Business Research
Volume46
Issue number4
DOIs
Publication statusPublished - 6 Jun 2016

Bibliographical note

Publisher Copyright:
© 2015 Taylor & Francis.

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