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This article investigates whether acquiring telecommunications firms managed their earnings by means of discretionary accruals prior to the announcement of stock-for-stock takeovers in the U.S. telecommunications industry during the period of 1990 to 2006. The results show that acquiring telecommunications firms manage earnings upward prior to stock-for-stock takeovers. In addition, this article finds that there is a negative short-term wealth effect over the days surrounding stock-for-stock takeover announcements, and there is an inverse relation between earnings management and short-term wealth.

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