This article investigates whether Australian companies manage their earnings during takeover bids in a manner consistent with the earningsmanagement hypothesis. This hypothesis predicts that directors who reject a bid use accrual accounting to increase current earnings, supporting their claim that the bid, relative to earnings, is inadequate. Likewise, directors who accept a bid are predicted to use accrual accounting to decrease current earnings. Overall, the results are not consistent with the earningsmanagement hypothesis. However, some components of unexpected accruals (our proxy for managed earnings) change in the direction predicted by the earnings-management hypothesis, although these changes are not statistically significant. Using industry adjusted performance measures the conclusion is that unexpected accruals are primarily a manifestation of poor financial performance of target firms in the period leading up to the takeover bid.

This paper reports an empirical examination of independent expert reports in takeover bids using the 170 reports that were issued in the 364 cash‐based bids that occurred between January 1988 and December 1991. It was found that bid premia offered in takeover bids where an expert's report was issued were not significantly lower than bid premia in other bids. This may be attributable to independent experts acting as a countervailing influence on bidders holding a superior pre‐bid bargaining position. Next, some dimensions of the “fair and reasonable” criterion that experts are required to use are examined. These are the single‐test and dual‐test interpretations of the phrase, the relation between offer price, market price and the expert's valuation of the target, the cost and length of expert's reports and, finally, the influence an expert has on the outcome of a bid.

The extent to which directors of target companies act in their own interests, and not shareholder interests, when a takeover bid is received is examined using data from 400 takeover bids for Australian listed companies. A series of hypotheses is developed from theoretical inquiry into the motives of target company directors. Using univariate and multivariate analysis to test these hypotheses, it is found that directors' accept/reject recommendations to shareholders are associated with target leverage, bid premium, bidder's initial shareholding, ownership concentration (univariate only) and directors' share holding in the target (univariate only). It is concluded that, overall, directors have acted in a manner consistent with shareholder interests, even though personal wealth effects are greatest for directors of bid-accept targets.

We investigate going private transactions in Australia between 1988 and 1991. Approximately ten percent of all takeovers during this period are instances of going private. In contrast to studies of similar transactions in the United States, we find no direct evidence to support a free cash flow explanation for going private, although going private is frequently preceded by the threat of a takeover offer. However, the free cash flow explanation for going private may not be applicable in Pacific Basin countries where exchange‐traded investment activity is in relatively high growth sectors and foreign ownership accounts for a large part of those investment sectors where managerial abuse of free cash flow has been alleged.

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