Do Norwegian Acquirers Manage Earnings Upwards Prior to Share for Share Bids? An Empirical Analysis of Earnings Management in the Norwegian Takeover Market

Eli Aunemo & Maren Stangeland

Studenteropgave: Kandidatafhandlinger

Abstrakt

The purpose of this thesis is to contribute to the emerging literature on earningsmanagement ahead of M&A, by conducting an empirical analysis of acquirers in theNorwegian takeover market. Recent studies suggest that acquiring firms in share forshare bids tend to manage earnings upwards by accrual manipulation in the periodpreceding the deal announcement. As the number of shares issued by the acquirerdepends on the acquiring firm’s stock price on or near the date of deal agreement, theacquiring firm’s management has an incentive to increase earnings prior to thetakeover. The motive is to raise the market price of the acquiring firm’s stocks, andhence reduce the cost of the merger, by using temporarily overvalued equity as a cheap“acquisition currency”. Earnings management may have serious implications for thedistribution of gains between acquiring and target firm’s shareholders, and for whichmanagement team emerges from the market for corporate control in command of thetarget’s assets. This paper asks whether this grey area of accounting is prevalent in theNorwegian takeover market, and provide the first analysis of earnings managementahead of share for share bids in a Nordic context. We investigate 64 firms, including32 share for share bids and 32 cash deals by a Norwegian acquirer, in the periodst stbetween January 1 , 2006 – January 1 , 2016. We find that earnings managementahead of M&A is not prevalent in the Norwegian takeover market, but that there is an observable tendency of income-increasing earnings management when the relative deal size is large. Three alternative interpretations are proposed: 1) Earnings management is less prevalent in Norway, compared to the countries where evidence have been found; 2) Norwegian acquirers manage earnings upwards prior to share for share bids, but only when the relative deal size is big, and thus the economic benefits high, and; 3) The model is inadequate in testing earnings management on small markets, and/or small samples. We conclude that further research is recommended to determine which one is the most proper.

UddannelserCand.merc.aef Applied Economics and Finance, (Kandidatuddannelse) Afsluttende afhandlingCand.merc.fsm Finance and Strategic Management, (Kandidatuddannelse) Afsluttende afhandling
SprogEngelsk
Udgivelsesdato2017
Antal sider121
VejledereAleksandra Gregoric