Business, Management and Accounting
4 years ago

High leverage linked to manipulation of earnings in corporate mergers.

Does High Leverage Impact Earnings Management? Evidence from Non-cash Mergers and Acquisitions
Malek Alsharairi, Aly Salama

Paper Summary

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High leverage does not impact earnings management in firms before mergers and acquisitions. However, after the deals are announced, there is evidence of upward earnings manipulation in non-cash acquirers. This suggests that creditors play a crucial role in monitoring firms and limiting management's ability to manipulate earnings during special events like mergers and acquisitions. Cash acquirers, on the other hand, do not engage in earnings management.