Managing Earnings Through M&A

21 Pages Posted: 20 May 2020

See all articles by Geoff Meeks

Geoff Meeks

University of Cambridge - Judge Business School

Jaqueline Meeks

University of Cambridge - Centre for Development Studies

Date Written: April 24, 2020

Abstract

This paper discusses the use of M&A to facilitate earnings management. The accounting procedures we analyse variously create earnings which would not be reported in the absence of M&A; or reduce reported earnings; or shift earnings between accounting periods. The motivation for deploying the procedures can include changing stakeholders’ perceptions of business performance and/or securing more favourable outcomes from contracts linked to earnings. Our main examples of creating or rescheduling earnings focus on three aspects of reporting the M&A transaction: the fair value adjustment, the reorganization provision, and the recognition of intangible assets. We also discuss briefly earnings management opportunities arising in relation to M&A transaction costs, latent losses, and impairment charges. We outline the opportunities to transform earnings, give actual examples, and identify ways in which such accounting might distort economic decisions.

Keywords: M&A, Earnings Management, Creative Accounting, Efficiency, Contracting

JEL Classification: D82, G00, G14, G32, G34, M41, M48

Suggested Citation

Meeks, Geoff and Meeks, Jaqueline, Managing Earnings Through M&A (April 24, 2020). Available at SSRN: https://ssrn.com/abstract=3584156 or http://dx.doi.org/10.2139/ssrn.3584156

Geoff Meeks (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0) 1223 764226 (Phone)
+44 (0) 1223 339701 (Fax)

Jaqueline Meeks

University of Cambridge - Centre for Development Studies ( email )

7 West Road
2nd floor, Alison Richard Building
Cambridge, CB3 9DT
United Kingdom

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