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Does Target Firm’s Earnings Management Affect Shareholder’s Gains? Evidence from China

  1. Journals
  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 55, Issue 2
  5. pp. 203–226

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Mughal, A., Haque, A., Zahid, Z., Ali, F., Li, Z. Does Target Firm’s Earnings Management Affect Shareholder’s Gains? Evidence from China. Credit and Capital Markets – Kredit und Kapital, 55(2), 203-226. https://doi.org/10.3790/ccm.55.2.203
Mughal, Azhar; Haque, Abdul; Zahid, Zohaib; Ali, Furman and Li, Zheng "Does Target Firm’s Earnings Management Affect Shareholder’s Gains? Evidence from China" Credit and Capital Markets – Kredit und Kapital 55.2, 2022, 203-226. https://doi.org/10.3790/ccm.55.2.203
Mughal, Azhar/Haque, Abdul/Zahid, Zohaib/Ali, Furman/Li, Zheng (2022): Does Target Firm’s Earnings Management Affect Shareholder’s Gains? Evidence from China, in: Credit and Capital Markets – Kredit und Kapital, vol. 55, iss. 2, 203-226, [online] https://doi.org/10.3790/ccm.55.2.203
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Does Target Firm’s Earnings Management Affect Shareholder’s Gains? Evidence from China

Mughal, Azhar | Haque, Abdul | Zahid, Zohaib | Ali, Furman | Li, Zheng

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 2 : pp. 203–226

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.55.2.203
Language
English
Pages
24
Keywords

Author Details

Dr. Azhar Mughal, Assistant Professor, The Institute of Management Sciences, Lahore Pakistan, Postcode 54000, and Researcher, Southwestern University of Finance and Economics, Chengdu, China Postcode 611130, +86 137 39499643, +92 320 4511678.

Dr. Abdul Haque, Associate Professor, COMSATS University Islamabad Lahore Campus, Lahore Pakistan, Postcode 54000, +92 333 4203330.

Zohaib Zahid, Southwestern University of Finance and Economics, Chengdu, China Postcode 611130, +86 137 39499247.

Furman Ali, Southwestern University of Finance and Economics, Chengdu, China Postcode 611130, +86 155 28384305.

Zheng Li (Corresponding Author), Sichuan Industrial Revitalization Development Investment Fund Co. Ltd, Chengdu, China, Postcode 610095, +86 28 85323231.

Cited By

  1. The Chinese Financial System and China’s Role in the Financial World

    Chen, Carl R.

    Tao, Qizhi

    Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 2 P.149

    https://doi.org/10.3790/ccm.55.2.149 [Citations: 1]

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Abstract

This study tests the hypothesis that the target firms are involved in earnings management activities in quarters leading to a takeover announcement. Using a sample of 3,455 Chinese listed firms that are targets of successful acquisitions over the period 2007–2020, and for a matched sample of non-targets, we find that target firms manipulate earnings in quarters leading to the announcement date. Further, we find evidence of a negative relationship between earnings management and short-term gains to shareholders. Our result remains robust after controlling for various deal characteristics. The study also suggests that pre-merger earnings management in target firms is not fully anticipated by the market before the takeover announcement. We find no evidence of earnings management immediately after the announcement quarter.

Table of Contents

Section Title Page Action Price
Azhar Mughal et al.: Does Target Firm’s Earnings Management Affect Shareholder’s Gains? Evidence from China 203
Abstract 203
I. Introduction 203
II. Literature Review 206
1. Earnings Management in Target Firms 206
2. Earnings Management and Stock Returns 207
III. Research Design 208
1. Hypothesis Development 208
2. Sample Selection 209
IV. Methodology 209
1. Propensity Score Matching 209
2. Measurement of Earnings Management 210
a) Accrual Earnings Management 210
b) Real Earnings Management 211
Abnormal Level of Production Cost 211
Abnormal Level of Discretionary Expenses 211
Total Level of Real EM 203
3. Excess Returns and Earnings Management 203
a) Estimation Results 203
1) Propensity Score Matching - Selection of Control Firms 203
2) Earnings Manipulation Prior to Merger Announcement 203
3) Shareholder Gains around Merger Announcement 203
4. Shareholder Gains and Earnings Management 203
a) Univariate Analysis 203
b) Multivariate Analysis 203
c) Conclusion 204
References 204

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