Event-Specific Earnings Management : Additional Evidence from US M&A Pre-and Post-Sox

We re-examine the motivation to manage earnings in US M&As, by investigating whether the enactment of SOX has affected pre-merger earnings management. Using a sample of over 700 completed M&As of US public firms during 1999-2008. Using quarterly reports, we track-down earnings management during the four quarters preceding the deal and consequently draw inferences about the implications of SOX on interim reporting practices. We find evidence of earnings management by non-cash acquirers, especially during the two to three quarters prior to the announcement date; this practice is more pronounced in the post-SOX period, suggesting that SOX simply lead to an earlier exercise of pre-merger earnings management. More interestingly, we reveal significant upward earnings management by targets in the last quarter prior to the deal, but only during the post-SOX era