دانلود رایگان مقاله انگلیسی مدیریت درآمد، تنظیم حسابرسی و تامین مالی شرکت های بزرگ - الزویر 2018

ABSTRACT

Acquirers are motivated to overstate earnings prior to stock-financed acquisitions. We hypothesize that audits help to detect and correct such overstatements. We test this using a difference-in-differences design, which compares audit adjustments to earnings for stockfinanced and cash-financed acquirers before versus after the acquisitions. Consistent with our hypothesis, we find larger downward adjustments in the audits immediately before stockfinanced acquisitions. Further analysis of regulatory sanction suggests the downward adjustments are in fact warranted, rather than auditors being overly conservative. Moreover, modifications in audit reports suggest that downward adjustments do not correct all of the reporting irregularities in audited financial statements.

6. Conclusions

Our study is the first to examine the corrections that are required by auditors when managers are motivated to overstate earnings prior to stock-financed acquisitions. We find auditors require larger downward adjustments to earnings in the year before companies finance their acquisitions using equity. We also find that companies with downward adjustments are more likely to be sanctioned by the CSRC for accounting and disclosure irregularities that occurred in the year prior to the M&A announcement date. This is inconsistent with auditors being overly conservative when they require companies to make downward adjustments. Further, we find that auditors are more likely to disclose accounting problems in their audit reports during the year immediately prior to stock-financed acquisitions. This suggests that not all of the attempts to overstate earnings are corrected through downward audit adjustments.

Our study helps to reconcile the mixed findings in prior studies that test for upward earnings management prior to stock-financed acquisitions. Erickson and Wang (1999) and Louis (2004) find abnormally large signed accruals prior to stock-financed acquisitions, whereas Heron and Lie (2002) and Pungaliya and Vijh (2009) obtain insignificant results. Consistent with managers attempting to overstate earnings prior to stock-financed acquisitions, we find larger downward audit adjustments to earnings. Our results provide two explanations for the insignificant results reported in prior studies (Heron and Lie, 2002; Pungaliya and Vijh, 2009). First, the audited financial statements provide less evidence of earnings management than the pre-audit financial statements because auditors help to detect and correct earnings overstatements. Audit corrections make it harder for researchers to detect upward earnings management using publicly available financial statements. Second, accruals variables provide low power tests for earnings management. We find insignificant results for pre-audit accruals even though our analysis of audit adjustments shows that auditors correct overstatements of pre-audit earnings prior to stock-financed acquisitions.