Earnings management and payment methods in M&A: an analysis of strategic choices in the Brazilian market
DOI:
https://doi.org/10.17524/repec.v20.e3861Keywords:
Fusões e aquisições, Gerenciamento de resultados, Forma de pagamentoAbstract
Objective: To analyze the relationship between earnings management strategies of publicly traded acquirers and the payment methods in mergers and acquisitions (M&A) in Brazil, focusing on the reversal of these strategies in the post-M&A period.
Methodology: A sample of 103 M&A transactions between 2010 and 2024, involving companies listed on B3, was analyzed using data from Refinitiv® and linear regression models.
Results: Acquirers engaged in real earnings management (REM) to increase reported earnings and influence the price paid in M&A transactions, without resorting to accrual-based earnings management (AEM). After the M&A, REM reversed in firms that used shares to finance the transaction, while AEM remained stable regardless of the payment method.
Contributions: From an academic perspective, the use of earnings management proxies before and after M&A transactions allows analyses more closely aligned with the event, without necessarily relying on event study methodology. In practice, the results have implications for shareholder valuations, as the potential use of earnings management may affect firms’ profits. Regulators, auditors, and M&A managers should carefully assess firms’ operational indicators—such as inventory levels, sales practices, and fluctuations in overhead expenses—to determine whether these activities are consistent with normal operations or indicative of earnings management.
Translation
This article is a translation in English of the article:
Gerenciamento de resultados e formas de pagamento em F&A: uma análise da escolha estratégica no mercado brasileiro
References
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Antonio, M. O. M., Monte-Mor, D. S., Brugni, T. V., Avelino, B. C., & Nossa, V. (2023). Gerenciamento de resultados por accruals e por decisões operacionais em fusões e aquisições no Brasil. Revista Enfoque: Reflexão Contábil, 42(2), 19-33. https://doi.org/10.4025/enfoque.v42i2.59768
Balakrishnan, S., & Koza, M. P. (1993). Information asymmetry, adverse selection and joint ventures: Theory and evidence. Journal of Economic Behavior & Organization, 20(1), 99-117. https://doi.org/10.1016/0167-2681(93)90083-2.
Black, E. L., Christensen, T. E., Taylor Joo, T., & Schmardebeck, R. (2017). The Relation between Earnings Management and Non‐GAAP Reporting. Contemporary Accounting Research, 34(2), 750-782. https://doi.org/10.1111/1911-3846.12284
Botsari, A., & Meeks, G. (2008). Do acquirers manage earnings prior to a share for share bid? Journal of Business Finance & Accounting, 35, 633-670.
https://doi.org/10.1111/j.1468-5957.2008.02091.x
Camargos, M. A., & Barbosa, F. V. B. (2010). Fusões e aquisições de empresas brasileiras: sinergias operacionais, gerenciais e rentabilidade. Revista Contabilidade Vista & Revista, 21(1), 69-99. https://revistas.face.ufmg.br/index.php/contabilidadevistaerevista/article/view/816.
Campa, D., & Hajbaba, A. (2016). Do targets grab the cash in takeovers: The role of earnings manage. International Review of Financial Analysis, 44, 56-64. http://dx.doi.org/10.1016/j.irfa.2016.01.008
Chang, C. C., & Pan, H. (2020). How do stock-for-stock acquirers manage earnings? The accruals feature of real earnings management. Journal of Contemporary Accounting and Economics, 16, 1-15. https://doi.org/10.1016/j.jcae.2020.100202
Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50, 2-19. https://doi.org/10.1016/j.jacceco.2010.01.002
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding Earnings quality: A review of the proxies, their determinants and their consequence. Journal of Accounting and Economics, 50, 344-401. http://doi:10.1016/j.jacceco.2010.09.001
Dechow, P. M., Hutton, A. P., Kim, J. H., & Sloan, R. G. (2012). Detecting earnings management: a new approach. Journal of Accounting Research, 50, 275-334.
https://doi:10.1111/j.1475-679X.2012.00449.x
Dokas, I., Leontidis, C., & Zervoudi, E. K. (2025). Accrual-Based Earnings Management in cross-border mergers and acquisitions: The role of institutional differences and geographic distance. Journal of Risk Financial Management, 18(2), 1-26.
https://doi.org/10.3390/jrfm18020050
Edi, & Irayanti, L. (2019). How merger and acquisition affect firm performance and its quality. Journal of Accounting, Finance and Auditing Studies, 5(3), 42-53. https://doi.org/10.32602/jafas.2019.30
Erickson, M., & Wang, S. (1999). Earnings management by acquiring firms in stock for stock mergers. Journal of Accounting and Economics, 27, 149-176.
https://doi.org/10.1016/S0165-4101(99)00008-7
Fasipe, O., & Sun, H. L. (2020). Real activities manipulation in stock-for-stock mergers. Journal of Economics and Finance, 44(3), 570-586.
https://doi.org/10.1007/s12197-019-09500-9
Farooqi, J., Ngo, T., & Jory, S. (2017). Real activities manipulation by bidders prior to mergers and acquisitions. Review of Accounting and Finance, 16(3), 322-347.
https://doi.org/10.1108/RAF-12-2014-0132
Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40, 3-73. https://doi.org/10.1016/j.jacceco.2005.01.002
Hansen, R. G. (1987). A theory for the choice of exchange medium in mergers and acquisitions. The Journal of Business, 60(1), 75-95. https://www.jstor.org/stable/2352948
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13, 365-383. https://doi.org/10.2308/acch.1999.13.4.365
Higgins, H. N. (2013). Do stock-for-stock merger acquirers manage earnings? Evidence from Japan. Journal of Accounting and Public Policy, 32(1), 44-70. http://dx.doi.org/10.1016/j.jaccpubpol.2012.10.001
Hribar, D. W., & Collins, P. (2002). Errors in estimating accruals: implications for empirical research. Journal of Accounting Research, 40(1), 105-134.
https://doi.org/10.1111/1475-679X.00041
Kassamany, T., Ibrahim, S., & Archbold, S. (2017). Accrual and real-based earnings management by UK acquirers: Evidence from pre-and post-higgs periods. Journal of Accounting & Organizational Change, 13(4), 492-519. https://doi.org/10.1108/JAOC-09-2015-0073
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39, 163-197. https://doi:10.1016/j.jacceco.2004.11.002
Louis, H. (2004). Earnings management and the market performance of acquiring firms. Journal of Financial Economics, 74, 121-148. https://doi:10.1016/j.jfineco.2003.08.004
Luypaert, M., & Caneghem, T. V. (2017). Exploring the double-sided effect of information asymmetry and uncertainty in mergers and acquisitions. Financial Management, 46(4), 873-917. https://doi.org/10.1111/fima.12170
Mendes, L. P., Pimenta, M. M., & Sousa, G. A. (2018). Fusões e aquisições versus gerenciamento de resultados: análise da qualidade da informação contábil das companhias listadas na B3. Pensar Contábil, 11-19. http://www.atena.org.br/revista/ojs-2.2.3-08/index.php/pensarcontabil/article/view/3469
Meng, B., & Vijh, A. M. (2021). Stock merger activity and industry performance. Journal of Banking & Finance, 129. https://doi.org/10.1016/j.jbankfin.2021.106160
Miranda Filho, S. S., Carvalho, J. F., Rech, I. J., & Carmo, C. H. S. (2024). Associação entre gerenciamento de resultados e F&A realizadas por empresas adquirentes da B3. Revista Contabilidade Vista & Revista, 35(4), 115-140. https://doi.org/10.22561/cvr.v35i3.8298
Morris, R. D. (1987). Signalling, agency theory and accounting policy choice. Accounting and Business Research, 18(69), 47-56. http://dx.doi.org/10.1080/00014788.1987.9729347
Myers, S., & Majluf, N. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Finance, 13, 187-221. https://doi.org/10.1016/0304-405X(84)90023-0
Pimenta, M. M. (2024). As mudanças na discricionariedade contábil afetam o gerenciamento de resultados? Evidência internacional. Advances in Scientific and Applied Accounting, 17(3), 11-25. https://doi.org/10.14392/asaa.2024170302
Reis, E. M., Lamounier, W. M., & Bressan, V. G. F. (2015). Evitar divulgar perdas: um estudo empírico do gerenciamento de resultados por meio de decisões operacionais. Revista Contabilidade & Finanças, 26(69), 247-260. https://doi.org/10.1590/1808-057x201501070
Renneboog, L., & Vansteenkiste, C. (2019). Failure and success in mergers and acquisitions. Journal of Corporate Finance, 58, 650-699. https://doi.org/10.1016/j.jcorpfin.2019.07.010
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42, 335-370. https://doi.org/10.1016/j.jacceco.2006.01.002
Shleifer, A., & Vishny, R. W. (2003). Stock market driven acquisitions. Journal of Financial Economics, 70(3), 259-311. https://doi.org/10.1016/S0304-405X(03)00211-3
Spence, M. (1973). Job Market Signaling. The Quarterly Journal of Economics, 87(3), 355-374. https://doi.org/10.2307/1882010
Sudarsanam, S., & Mahate, A. A. (2003). Glamour acquirers, method of payment and post-acquisition performance: The UK Evidence. Journal of Business Finance & Accounting, 30(1-2), 299-342. https://doi.org/10.1111/1468-5957.00494
Zang, A. Y. (2012). Evidence on the tradeoff between real manipulation and accrual manipulation. The Accounting Review, 87(42), 675-703. https://www.jstor.org/stable/23245619
Zhang, Z. (2015). Under-Performance of listed companies, real earnings management and M&A: Chinese empirical evidence. Journal of Industrial Engineering and Management, 8(2), 322-334. http://dx.doi.org/10.3926/jiem.1330
Allen, E., Larson, C., & Sloan, R. (2013). Accrual reversals, earnings and stock returns. Journal of Accounting and Economics, 56(1), 113-129. http://dx.doi.org/10.1016/j.jacceco.2013.05.002
Antonio, M. O. M., Monte-Mor, D. S., Brugni, T. V., Avelino, B. C., & Nossa, V. (2023). Gerenciamento de resultados por accruals e por decisões operacionais em fusões e aquisições no Brasil. Revista Enfoque: Reflexão Contábil, 42(2), 19-33. https://doi.org/10.4025/enfoque.v42i2.59768
Balakrishnan, S., & Koza, M. P. (1993). Information asymmetry, adverse selection and joint ventures: Theory and evidence. Journal of Economic Behavior & Organization, 20(1), 99-117. https://doi.org/10.1016/0167-2681(93)90083-2.
Black, E. L., Christensen, T. E., Taylor Joo, T., & Schmardebeck, R. (2017). The Relation between Earnings Management and Non‐GAAP Reporting. Contemporary Accounting Research, 34(2), 750-782. https://doi.org/10.1111/1911-3846.12284
Botsari, A., & Meeks, G. (2008). Do acquirers manage earnings prior to a share for share bid? Journal of Business Finance & Accounting, 35, 633-670.
https://doi.org/10.1111/j.1468-5957.2008.02091.x
Camargos, M. A., & Barbosa, F. V. B. (2010). Fusões e aquisições de empresas brasileiras: sinergias operacionais, gerenciais e rentabilidade. Revista Contabilidade Vista & Revista, 21(1), 69-99. https://revistas.face.ufmg.br/index.php/contabilidadevistaerevista/article/view/816.
Campa, D., & Hajbaba, A. (2016). Do targets grab the cash in takeovers: The role of earnings manage. International Review of Financial Analysis, 44, 56-64. http://dx.doi.org/10.1016/j.irfa.2016.01.008
Chang, C. C., & Pan, H. (2020). How do stock-for-stock acquirers manage earnings? The accruals feature of real earnings management. Journal of Contemporary Accounting and Economics, 16, 1-15. https://doi.org/10.1016/j.jcae.2020.100202
Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50, 2-19. https://doi.org/10.1016/j.jacceco.2010.01.002
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding Earnings quality: A review of the proxies, their determinants and their consequence. Journal of Accounting and Economics, 50, 344-401. http://doi:10.1016/j.jacceco.2010.09.001
Dechow, P. M., Hutton, A. P., Kim, J. H., & Sloan, R. G. (2012). Detecting earnings management: a new approach. Journal of Accounting Research, 50, 275-334.
https://doi:10.1111/j.1475-679X.2012.00449.x
Dokas, I., Leontidis, C., & Zervoudi, E. K. (2025). Accrual-Based Earnings Management in cross-border mergers and acquisitions: The role of institutional differences and geographic distance. Journal of Risk Financial Management, 18(2), 1-26.
https://doi.org/10.3390/jrfm18020050
Edi, & Irayanti, L. (2019). How merger and acquisition affect firm performance and its quality. Journal of Accounting, Finance and Auditing Studies, 5(3), 42-53. https://doi.org/10.32602/jafas.2019.30
Erickson, M., & Wang, S. (1999). Earnings management by acquiring firms in stock for stock mergers. Journal of Accounting and Economics, 27, 149-176.
https://doi.org/10.1016/S0165-4101(99)00008-7
Fasipe, O., & Sun, H. L. (2020). Real activities manipulation in stock-for-stock mergers. Journal of Economics and Finance, 44(3), 570-586.
https://doi.org/10.1007/s12197-019-09500-9
Farooqi, J., Ngo, T., & Jory, S. (2017). Real activities manipulation by bidders prior to mergers and acquisitions. Review of Accounting and Finance, 16(3), 322-347.
https://doi.org/10.1108/RAF-12-2014-0132
Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40, 3-73. https://doi.org/10.1016/j.jacceco.2005.01.002
Hansen, R. G. (1987). A theory for the choice of exchange medium in mergers and acquisitions. The Journal of Business, 60(1), 75-95. https://www.jstor.org/stable/2352948
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13, 365-383. https://doi.org/10.2308/acch.1999.13.4.365
Higgins, H. N. (2013). Do stock-for-stock merger acquirers manage earnings? Evidence from Japan. Journal of Accounting and Public Policy, 32(1), 44-70. http://dx.doi.org/10.1016/j.jaccpubpol.2012.10.001
Hribar, D. W., & Collins, P. (2002). Errors in estimating accruals: implications for empirical research. Journal of Accounting Research, 40(1), 105-134.
https://doi.org/10.1111/1475-679X.00041
Kassamany, T., Ibrahim, S., & Archbold, S. (2017). Accrual and real-based earnings management by UK acquirers: Evidence from pre-and post-higgs periods. Journal of Accounting & Organizational Change, 13(4), 492-519. https://doi.org/10.1108/JAOC-09-2015-0073
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39, 163-197. https://doi:10.1016/j.jacceco.2004.11.002
Louis, H. (2004). Earnings management and the market performance of acquiring firms. Journal of Financial Economics, 74, 121-148. https://doi:10.1016/j.jfineco.2003.08.004
Luypaert, M., & Caneghem, T. V. (2017). Exploring the double-sided effect of information asymmetry and uncertainty in mergers and acquisitions. Financial Management, 46(4), 873-917. https://doi.org/10.1111/fima.12170
Mendes, L. P., Pimenta, M. M., & Sousa, G. A. (2018). Fusões e aquisições versus gerenciamento de resultados: análise da qualidade da informação contábil das companhias listadas na B3. Pensar Contábil, 11-19. http://www.atena.org.br/revista/ojs-2.2.3-08/index.php/pensarcontabil/article/view/3469
Meng, B., & Vijh, A. M. (2021). Stock merger activity and industry performance. Journal of Banking & Finance, 129. https://doi.org/10.1016/j.jbankfin.2021.106160
Miranda Filho, S. S., Carvalho, J. F., Rech, I. J., & Carmo, C. H. S. (2024). Associação entre gerenciamento de resultados e F&A realizadas por empresas adquirentes da B3. Revista Contabilidade Vista & Revista, 35(4), 115-140. https://doi.org/10.22561/cvr.v35i3.8298
Morris, R. D. (1987). Signalling, agency theory and accounting policy choice. Accounting and Business Research, 18(69), 47-56. http://dx.doi.org/10.1080/00014788.1987.9729347
Myers, S., & Majluf, N. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Finance, 13, 187-221. https://doi.org/10.1016/0304-405X(84)90023-0
Pimenta, M. M. (2024). As mudanças na discricionariedade contábil afetam o gerenciamento de resultados? Evidência internacional. Advances in Scientific and Applied Accounting, 17(3), 11-25. https://doi.org/10.14392/asaa.2024170302
Reis, E. M., Lamounier, W. M., & Bressan, V. G. F. (2015). Evitar divulgar perdas: um estudo empírico do gerenciamento de resultados por meio de decisões operacionais. Revista Contabilidade & Finanças, 26(69), 247-260. https://doi.org/10.1590/1808-057x201501070
Renneboog, L., & Vansteenkiste, C. (2019). Failure and success in mergers and acquisitions. Journal of Corporate Finance, 58, 650-699. https://doi.org/10.1016/j.jcorpfin.2019.07.010
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42, 335-370. https://doi.org/10.1016/j.jacceco.2006.01.002
Shleifer, A., & Vishny, R. W. (2003). Stock market driven acquisitions. Journal of Financial Economics, 70(3), 259-311. https://doi.org/10.1016/S0304-405X(03)00211-3
Spence, M. (1973). Job Market Signaling. The Quarterly Journal of Economics, 87(3), 355-374. https://doi.org/10.2307/1882010
Sudarsanam, S., & Mahate, A. A. (2003). Glamour acquirers, method of payment and post-acquisition performance: The UK Evidence. Journal of Business Finance & Accounting, 30(1-2), 299-342. https://doi.org/10.1111/1468-5957.00494
Zang, A. Y. (2012). Evidence on the tradeoff between real manipulation and accrual manipulation. The Accounting Review, 87(42), 675-703. https://www.jstor.org/stable/23245619
Zhang, Z. (2015). Under-Performance of listed companies, real earnings management and M&A: Chinese empirical evidence. Journal of Industrial Engineering and Management, 8(2), 322-334. http://dx.doi.org/10.3926/jiem.1330
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2026-06-08
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dos Reis, E. M., & Lamounier, W. M. (2026). Earnings management and payment methods in M&A: an analysis of strategic choices in the Brazilian market. Journal of Education and Research in Accounting (REPeC), 20. https://doi.org/10.17524/repec.v20.e3861
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