Earnings Management and Mergers and Acquisitions: Empirical Evidence From Italian- Listed Companies

This chapter investigates whether Italian-listed companies involved in mergers and acquisitions (M&A) during the period 2009–2017 manipulated earnings through recourse to discretionary accruals in re- sponse to financial market competition. Interest in the possible effects of competition on earnings man- agement practices follows the considerable attention attracted by the effects of business combinations on disclosure quality and reliability. M&A represents an opportunity for managers to manipulate financial reports and to deliver misleading market information in order to enhance company reputation and at- tract funds from investors. This empirical analysis demonstrates that Italian-listed companies involved in M&A used goodwill as a discretionary accrual for managing earnings. The findings indicate that the increasing level of financial market competition between Italian-listed companies prompted major recourse to earnings management practices based on discretionary accruals.