Earnings management around UK open offers

Iqbal, Abdullah; Espenlaub, Susanne; Strong, Norman

doi:10.1080/13518470701705652

Cited by 51 publications

(55 citation statements)

References 22 publications

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“…They also find that the post-SEO stock market performance of SEO firms is negatively correlated with the degree of EM at the time of the SEO. Iqbal et al (2009) find similar results for UK open offers (OOs) 1991 -1995. These results suggest that the market is misled by EM around SEOs and OOs.…”

Section: Initial Public Offeringssupporting

confidence: 86%

How far can we trust earnings numbers? What research tells us about earnings management

Walker

2013

Accounting and Business Research

168

128

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The article reviews the recent academic research literature on earnings management (EM) with a view to identifying research themes and results of interest to users and preparers of financial statements, accounting standard setters, and others with responsibility for ensuring that companies provide financial information to shareholders that can be relied upon. Hopefully students of accounting with an interest in exploring the EM literature will find that the article provides a useful framework. The literature on this topic is vast, and it is not possible to cover every article in detail. I provide an impressionistic survey that highlights examples of specific research themes and methods that regularly appear in the literature. Most of the examples are chosen from the literature published since 2000, although I do also highlight a few methodological contributions that appeared earlier. It is inevitable that the selection of articles reflects to some extent my personal interests and biases (intentional or otherwise). Thus, I wish to acknowledge that I owe a very substantial intellectual debt to the insights and contributions of the many uncited authors of a literature that spans over 40 years in over 20 accounting and finance journals. 1

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Section: Initial Public Offeringssupporting

confidence: 86%

How far can we trust earnings numbers? What research tells us about earnings management

Walker

2013

Accounting and Business Research

168

128

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“…Companies have reasons to issue shares when their market price is overvalued. The weight of evidence to date is that long-run average abnormal returns following UK rights issues, open offers and placings are negative, though the results are sensitive to the methodology (Ho, 2005;and Iqbal et al, 2009); also, operating performance following rights issues is disappointing on average (Andrikopoulos, 2009). Our inference of heterogeneous valuations is consistent with the evidence in Bagwell (1992).…”

Section: (B) Decisions Of Existing Shareholders: Evidence For Heterogmentioning

confidence: 93%

Block Buying and Choice of Issue Method in UK Seasoned Equity Offers

Armitage¹

2010

Business Fin & Account

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Much of the new equity declined by existing shareholders in UK SEOs is bought in a few large blocks, both by other existing holders and by new investors. The paper argues that a placing process via negotiation with investors facilitates the purchase of large blocks better than the alternative method of selling rights on the market, and that this helps to explain the decline of rights issues in the UK. Other explanations for use of the placing method appear to be of limited relevance, except perhaps certificaton of issuer value. Copyright (c) 2010 Blackwell Publishing Ltd.

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“…The acquisition year (year t) and preacquisition year (year t-1) are determined similar to Iqbal et al (2009) …”

Section: Accrual-based Earnings Management Measuresmentioning

confidence: 99%

“…These events include seasoned equity offerings (e.g. Rangan, 1998; Teoh et al, 1998b;Shivakumar, 2000;Ching et al, 2006;Iqbal et al, 2009; 8 Bardos and Zaiats, 2012;Dionysiou, 2015), initial public offerings (e.g., Teoh et al, 1998a; Teoh et al, 1998c; Teoh and Wong, 2002;Chang et al, 2010; Liu et al, 2014; Miloud, 2014), and management buyouts (e.g. DeAngelo, 1986; Perry and Williams, 1994).…”

mentioning

confidence: 99%

Accrual and real-based earnings management by UK acquirers

Kassamany

Ibrahim

Archbold

2017

JAOC

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Methodology: Mean and median accrual and real-based manipulation are examined in the period before the announcement of a merger and acquisition. These are compared across stock and cash acquirers as well as before and after the implementation of the Higgs recommendations. We also run logistic regressions to examine accrual and realbased manipulation across stock and cash acquirers after controlling for variables that may impact the acquisition type. Findings:We find some evidence of upward pre-merger accrual-based earnings management by stock-financed acquirers, which is in line with the findings of Botsari and Meeks (2008). Furthermore, we do not find significant changes in the post-Higgs period which indicates that the recommendations put forth by Higgs may not have been successful in mitigating earnings management. Our evidence also shows that cash bidders engage in pre-merger real earnings manipulation through lower discretionary expenses, possibly to enhance cash availability for the bid. 2Practical implications: The findings in this study confirm earnings management exists around mergers and acquisitions and provide some evidence that the recommendations set out in the Higgs Report do not appear to have mitigated earnings management activities. This is of interest to regulators as well as investors and academicians.Originality: This provides the first analysis in the UK examining the use of real-based earnings management activities by UK acquirers. It also extends prior research around corporate governance changes that occurred in the UK. IntroductionEarnings management has been extensively examined through a stream of research that considers firms involved in specific corporate events (such as seasoned equity offerings, initial public offerings and management buyouts). This study extends prior results on earnings management in mergers and acquisitions (hereafter M&As) that engage in either cash or stock bids; and examines the prevalence of accrual and real-based earnings management in this context. Furthermore, we examine whether regulatory changes in the UK following the Higgs (2003) report have an impact on earnings management in this context.Though prior research has examined accrual-based manipulation in the M&A context in the US (such as Erickson and Wang, 1999; Louis, 2004) in the UK (Botsari and Meeks, 2008), and in the Asia-pacific region (Ardekani et al., 2012;Higgins, 2013;Jeong and Bae, 2013), only limited studies have extended its scope to examine whether acquiring firms engage in the manipulation of real activities (e.g. Zhang, 2015). Therefore, a comprehensive study that considers both accrual and real-based earnings management practices is needed to contribute to earnings management research in the UK M&A context. Furthermore, fundamental changes to governance codes around the world have occurred over the past few years. For example, the enactment of the Sarbanes-Oxley Act in the US; the UK Corporate Governance Code in the UK based on the recommendations set out in the Higgs Report (2003)...

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Earnings management around UK open offers

Cited by 51 publications

References 22 publications

How far can we trust earnings numbers? What research tells us about earnings management

How far can we trust earnings numbers? What research tells us about earnings management

Block Buying and Choice of Issue Method in UK Seasoned Equity Offers

Accrual and real-based earnings management by UK acquirers

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