The role of earnings management as defensive strategy to takeovers

Rowe, Thomas. (2008). The role of earnings management as defensive strategy to takeovers Honours Thesis, School of Business, University of Queensland.

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Author Rowe, Thomas.
Thesis Title The role of earnings management as defensive strategy to takeovers
School, Centre or Institute School of Business
Institution University of Queensland
Publication date 2008
Thesis type Honours Thesis
Total pages 102
Language eng
Subjects 1502 Banking, Finance and Investment
Formatted abstract
The primary objective of this study is to investigate whether earnings management can form a 'defensive strategy' for firms who are perceived as 'potential' takeover targets. Earnings management has the potential to be a takeover defence because of its ability to distort measures of earnings. This study employs a MLR model as a novel variation on the Powell (2004) takeover prediction model. Takeover targets are predicted using this model, as using actual takeovers would limit the study to firms who failed to implement a successful defence. The data used for the prediction model consists of 70 ASX listed firms that were subject to takeover offers, and 70 ASX listed industry matched non-targets, between 2000-2005. This research design allows for an analysis of whether earnings management is an observable 'defensive strategy' and also if it can successfully deter potential bidders.

The results of the study show that earnings management is observable as a long-term takeover 'defence strategy' in 'predicted' target firms. The levels of earnings management are statistically significant and positive for samples of 'predicted' hostile and friendly firms, when compared to a sample of 'predicted' non-targets (Significant at the 5% level). To determine the success of earnings management as a takeover defence, the difference between the 'actual' targets and 'predicted' samples is analysed. No statistical significance is found for differences between these samples, however weak support is found that hostile takeover targets deter bidders through earnings management.

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Created: Fri, 26 Nov 2010, 11:59:47 EST by Muhammad Noman Ali on behalf of The University of Queensland Library