Effect of Firm's Acquisition Strategy on Earnings Management

This study examines whether the target firms manage their earnings in the period leading to their acquisition upward or not, using data on a sample of 46 firms listed in Tehran Stock Exchange for three industries in the period 1382-87. In this study, discretionary accruals were used as the proxy for earnings management, and the modified Jones model under the balance sheet and cash flow approaches is utilized, regarding some modifications in the balance sheet approach. The results show that there were no significant difference between the discretionary accruals of target firms in the periods before and after acquisition, and no significant difference for discretionary accruals between the target firms in the period before acquisition and the firms in control group.