Exemple

de prsentation darticle

F. Missonier-Piera, W. Ben Amar, (2008), Earnings Management by

Friendly Takeover Targets : en Empirical Analysis, International
Journal of Managerial Finance, vol 4, n3, 2008

Outline

Introduction / research question

Explanatory Factors

Research design

Statistical results

Conclusion

2
Introduction

Financial statements are supposed to present the
financial/economic situation of the firm.

Diversity of accounting choices contributes to such

objective.

Yet, this accounting flexibility may serve other

interests . . .

Research question

What factors / circumstances are likely to affect

accounting choices of (Swiss) firms ?

4
 Explanatory Factors at large

CREDITORS Debt agreements

MANAGERS Bonus plan

POLITICS Firms visibility

Explanatory Factors : circumstances

Unions negotiations, IPO, Share Repurchases

Corporate Control Contests

Merger & Acquisition
(Christie and Zimmerman, 1994; Easterwood, 1998)

MBO
(De Angelo, 1986; Perry and Williams, 1994; Wu 1997)

6
 Explanatory Factors : circumstances

Corporate control contest ... in Switzerland

Hypothesis
In the case of a friendly tender offer : managers
of the target firm will tend to manage earnings
downward.

8
 Research design - sample

Tender offers from 1990 to 2003.

Acquisition of at least 20% of the voting rights.

50 Swiss listed firms (SWX) as target

and 50 as control firms.

Descriptive statistics of the tender offers

Total tender offers 248
Tender offers > 20% 138 represents 96 firms

Firms with all data 50 firms

Quartiles
Mean Std. dev. 1st 2nd 3rd

Acquired shares (%) 57.79 35.55 21.5 53.3 100

SDC Thomson Financials

10
 Research design - model
Focus on accruals instead of Accounting methods
Earnings = Cash Flows + Total accruals

Focus is on discretionary accruals (DA),

where Total Accruals (TA)
TA are defined as :

TA = [Current Assets Cash] [Current Liabilities Current portion of Long term Debt]
Depreciation and amortization exp ense

11

Research design - model

What normal total accruals would have been without managers' discretionary choice ?

The regression-based expectations model (Jones, 1991) is as follows :

TAi ,t 1 Salesi ,t PPEi ,t

= i + 1,i + 2 ,i + i ,t (1)
Ai ,t 1 Ai ,t 1 Ai ,t 1 Ai ,t 1

12
 Research design - model
Regression-based Year (p) of expected
expectations model Tender offer year
earnings management

Year t-2 Year t-1 Year t

13

Research design - model

Discretionary accruals (DA) or "abnormal accruals" are computed
using the expected accruals obtained from model (1), is as follows :

TAi , p 1 Salesi , p PPEi , p

DAi , p =
ai + b1,i + b2,i
Ai , p 1
Ai , p 1 Ai , p 1 Ai , p 1

14
 Results
Abnormal accruals for target and control firms
Target firms Control firms
Year 1 Year 2 Year 1 Year 2
Mean 0.0386 *** 0.0174 0.0001 0.0147
Std. dev 0.0973 0.0945 0.0660 0.0995
1st quartile 0.0693 0.0468 0.0346 0.0466
Median 0.0276 0.0073 0.0026 0.0198
3rd quartile 0.0265 0.0279 0.0361 0.0278
*, **, *** significantly different from zero at the 10%, 5% and 1% respectively

15

Results
Comparison of means
Year 1 Year 2
Mean Rank Tests Mean Rank Tests

DAp u0 =-0.0001 R0 = 57.34 t = -2.39*** u0 = - 0.0147 R0 = 48.92 t =-1.04

u1 = -0.0386 R1 = 44.84 Z= -2.10** u1 = - 0.0174 R1 = 46.98 Z=-0.34

Subscript 0 corresponds to control firms, and subscript 1 to target firms.

16
Results
Regression results of variables affecting discretionary accruals
Total Debt to Return Operating Firm
DA i =1 + 2 log + 3 + 4 + 5 + 6 + i,j
assets i equiy i on equity i cash-flows type i
Parameter
Variables Estimates Std. Error t-stat Pr > t
Intercept - 0.066 0.067 - 0.988 0.326
Log (Total Assets) 0.029 0.026 1.111 0.270
Debt/Equity 0.145E-03 0.012 - 0.012 0.990
Return on Equity - 0.010 0.039 - 0.245 0.807
Operating Cash Flows - 0.121E-03 0.117E-04 - 1.037 0.303
Firm Type - 0.065 0.018 - 3.506 0.001***
Adjusted R2 = 9.01%
F value = 2.64**
*, **, *** significant at the 10%, 5% and 1% respectively.
Firm Type equals to 1 for target takeover firms and 0 for the control group.

17

Conclusion

Results differ from those for hostile takeovers.

Swiss corporate managers seem to take into account

the opportunity to falicitate friendly tender offers.

18
Further research

Are those results likely to occur in other European
countries ?

The mode of payment of such tender offers

(or M&A) may affect accounting choices ?

19

To be continued

20