This study investigates the effect of earnings management (EM) on deal premiums in friendly takeovers. It examines both accruals and real EM in the year preceding the deal announcement, based on a sample of 578 European firms subject to an acquisition or acquisition attempt between 2005 and 2015. The empirical findings suggest that downward EM is associated with a higher premium offered by the acquirer. The results suggest that income‐decreasing accounting choices could be a negotiated strategy between the acquirer and target firms’ managers to clean the balance sheet, reduce the likelihood of litigation, and create a fictive performance through an accrual reversal post‐acquisition.