This paper examines whether corporate diversification has an impact on accruals earnings management by UK targets in M&As. Following prior research (Jiraporn et al., 2008; El Mehdi and Seboui, 2011), we explicitly distinguish between industrial and geographic diversification. These two dimensions of diversification differ in terms of their degree of information asymmetry, while in industrially diversified firms the accruals at the business segment level tend to offset each other, geographically diversified firms seem to be subject to higher information asymmetry. Using a sample of 229 UK publicly listed targets and employing cross-sectional accrual models and a panel regression framework, we find that industrial diversification mitigates earnings management by UK targets prior to M&As. The results of our study also show that a combination of industrial and geographic diversification is associated with a lesser degree of earnings management, which is consistent with those reported by Jiraporn et al. (2008) and El Mehdi and Seboui (2011) for US firms. However, our evidence suggests that geographic diversification is associated with a higher degree of earnings management, however the results are not statistically significant.

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