The post-merger performance of the European M&As: Does pre-merger earnings management matter?

This paper empirically examines the post-merger performance of a sample of 1,320 European mergers and acquisitions deals. Specifically, we investigate the impact of pre-merger earnings management of acquirers on both the short-term and long-term post-merger performance, for M&A deals completed between 2003-2012, considering both the form of payment and the target firm’s listing status. The findings suggest that acquirers report higher abnormal accruals before those deals where they pay with their stock and the target firms are private. The reported evidence suggests that, as a consequence, investors correct for these efforts in the long-term post-merger period – usually within the first 12 months. Moreover, acquirers are likely to experience positive abnormal returns in case of bidding for private targets, whereas negative abnormal returns are documented in case of a publicly traded target, respectively.