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

Student thesis: Master thesis


The purpose of this thesis is to contribute to the emerging literature on earnings management ahead of M&A, by conducting an empirical analysis of acquirers in the Norwegian takeover market. Recent studies suggest that acquiring firms in share for share bids tend to manage earnings upwards by accrual manipulation in the period preceding the deal announcement. As the number of shares issued by the acquirer depends on the acquiring firm’s stock price on or near the date of deal agreement, the acquiring firm’s management has an incentive to increase earnings prior to the takeover. The motive is to raise the market price of the acquiring firm’s stocks, and hence reduce the cost of the merger, by using temporarily overvalued equity as a cheap “acquisition currency”. Earnings management may have serious implications for the distribution of gains between acquiring and target firm’s shareholders, and for which management team emerges from the market for corporate control in command of the target’s assets. This paper asks whether this grey area of accounting is prevalent in the Norwegian takeover market, and provide the first analysis of earnings management ahead of share for share bids in a Nordic context. We investigate 64 firms, including 32 share for share bids and 32 cash deals by a Norwegian acquirer, in the period st st between January 1 , 2006 – January 1 , 2016. We find that earnings management ahead 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.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final ThesisMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2017
Number of pages121
SupervisorsAleksandra Gregoric