Earnings management, audit adjustments, and the financing of corporate acquisitions: Evidence from China

• 成果类型: Article
• 署名作者: Lennox, Clive; Wang, Zi-Tian; Wu, Xi
• 署名单位: University of Southern California; Shanghai University of Finance & Economics; Central University of Finance & Economics
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2017.11.011
• 发表日期: 2018
• 关键词: initial public offerings; nonaudit services; Market concentration; big 4; discretionary accruals; client importance; acquiring firms; real activities; office size; QUALITY

摘要

Acquirers are motivated to overstate earnings prior to stock-financed acquisitions. We hypothesize that audits help to detect and correct such overstatements. We test this using a difference-in-differences design, which compares audit adjustments to earnings for stock financed and cash-financed acquirers before versus after the acquisitions. Consistent with our hypothesis, we find larger downward adjustments in the audits immediately before stock-financed acquisitions. Further analysis of regulatory sanctions suggests the downward adjustments are in fact warranted, rather than auditors being overly conservative. Moreover, modifications in audit reports suggest that downward adjustments do not correct all of the reporting irregularities in audited financial statements. (C) 2017 Elsevier B.V. All rights reserved.