Real earnings manipulation surrounding mergers and acquisitions: the targets’ perspective

Purpose This paper aims to investigate whether UK public targets manage their earnings using real activities manipulation in the period prior announcement of a mergers and acquisition (M&A). It also examines payment method M&As affects degree which takeover manipulate earnings. Design/methodology/approach Using sample 131 listed acquired over 1995–2013, this management (REM) by employing OLS regression models. The data related deals have been mainly collected from Thomson One Banker Reuters Eikon databases. REM is examined investigating abnormal cash flow operations, discretionary expenses production costs. analysis was supplemented conducting additional robustness checks. Findings results show that upwards through cutting year acquisition, while they do not so manipulating sales or Moreover, cash-only mixed-payment same strong motivation as stock-financed deal target counterparts do. Our continue hold after alternative accrual (EM) measures, controlling for unobservable firm heterogeneity fixed-effect model endogeneity two-stage Heckman (1979) model. Practical implications main findings study could be beneficial various parties involved M&As, such standard setters regulators. A need arises improve disclosure rules enhance overall financial reporting quality capital markets with aim reducing information asymmetry agency conflicts. Originality/value As far literature on EM around concerned, only acquirers has examined, much attention paid targets’ EM.