{"title":"Does contingent payment in M&As induce acquirers’ earnings management? Evidence from performance commitment","authors":"Zeyu Sun , Ningning Kong , Lei Wu , Yu Bao","doi":"10.1016/j.ribaf.2024.102257","DOIUrl":null,"url":null,"abstract":"<div><p>We examine the impact of performance commitment, a contingent payment mechanism in M&As, on acquirers’ earnings management. We find that performance commitment induces a transmission of earnings management from targets to acquirers. Specifically, acquirers, especially those whose targets just meet the promised performance goals, increase both accrual-based and real earnings management after the commitment period expires. This effect is partially driven by targets’ earnings decline in the post-commitment period. In addition, this effect is attenuated by effective internal controls and high analysts following, but intensified by share pledging and aggressive commitment. Our findings imply the failure of performance commitment in investor protection.</p></div>","PeriodicalId":51430,"journal":{"name":"Research in International Business and Finance","volume":"69 ","pages":"Article 102257"},"PeriodicalIF":6.9000,"publicationDate":"2024-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Research in International Business and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0275531924000497","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We examine the impact of performance commitment, a contingent payment mechanism in M&As, on acquirers’ earnings management. We find that performance commitment induces a transmission of earnings management from targets to acquirers. Specifically, acquirers, especially those whose targets just meet the promised performance goals, increase both accrual-based and real earnings management after the commitment period expires. This effect is partially driven by targets’ earnings decline in the post-commitment period. In addition, this effect is attenuated by effective internal controls and high analysts following, but intensified by share pledging and aggressive commitment. Our findings imply the failure of performance commitment in investor protection.
期刊介绍：
Research in International Business and Finance (RIBAF) seeks to consolidate its position as a premier scholarly vehicle of academic finance. The Journal publishes high quality, insightful, well-written papers that explore current and new issues in international finance. Papers that foster dialogue, innovation, and intellectual risk-taking in financial studies; as well as shed light on the interaction between finance and broader societal concerns are particularly appreciated. The Journal welcomes submissions that seek to expand the boundaries of academic finance and otherwise challenge the discipline. Papers studying finance using a variety of methodologies; as well as interdisciplinary studies will be considered for publication. Papers that examine topical issues using extensive international data sets are welcome. Single-country studies can also be considered for publication provided that they develop novel methodological and theoretical approaches or fall within the Journal''s priority themes. It is especially important that single-country studies communicate to the reader why the particular chosen country is especially relevant to the issue being investigated. [...] The scope of topics that are most interesting to RIBAF readers include the following: -Financial markets and institutions -Financial practices and sustainability -The impact of national culture on finance -The impact of formal and informal institutions on finance -Privatizations, public financing, and nonprofit issues in finance -Interdisciplinary financial studies -Finance and international development -International financial crises and regulation -Financialization studies -International financial integration and architecture -Behavioral aspects in finance -Consumer finance -Methodologies and conceptualization issues related to finance
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