Does cross-border acquisition reduce earnings management of emerging market acquirers? Evidence from India

Purayil, Priyesh Valiya and P. J., Jijo Lukose (2022) Does cross-border acquisition reduce earnings management of emerging market acquirers? Evidence from India. International Review of Finance, 22 (1). pp. 143-168. ISSN 1369412X

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Cross-border acquisitions by emerging market firms have been increasing at an accelerated pace. The present study examines the impact of cross-border acquisition on the earnings manipulation of emerging market firms by analyzing the cross-border deals from India during the period 2000–2015. Using two proxies for earnings management, we find that cross-border acquisition reduces the incentive to manipulate earnings by way of accruals, but not via real economic transactions. Further, cross-sectional tests reveal that the incentive to reduce accrual earnings manipulation is more pronounced when the acquisition is made in countries with a strong corporate governance structure. Additional analysis indicates that acquisition results in increased earnings response coefficient for the acquirer firms relative to the control firms. Our finding is robust even after controlling for cross-listing and endogeneity associated with cross-border acquisition decision. The results have implications for the literature on the spillover of financial reporting practices across countries due to cross-border business activities, especially in the context of emerging markets, which are known for their weak investor protection and underdeveloped institutional environment.

Item Type: Article
Keywords: Cross-Border Mergers and Acquisitions | Corporate Governance | Earnings Management | Emerging Markets
Subjects: Social Sciences and humanities > Economics, Econometrics and Finance > Banking and Finance
JGU School/Centre: Jindal Global Business School
Depositing User: Amees Mohammad
Date Deposited: 02 Feb 2022 07:17
Last Modified: 21 Jul 2022 07:28
Official URL:
Funders: National Stock Exchange (NSE)—Indira Gandhi Institute of Development Research (IGIDR), India


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