Earnings management by share-financed acquirers prior to deal announcements: The roles of financial expertise, tenure and reputation.

Previous research has suggested that share-financed acquirers inflate their earnings before merger announcements. The existing literature also indicates that the characteristics of CEOs could affect earnings management. This research extends prior studies by examining the relationships between CEO characteristics and accrual-based and real earnings management in share-financed acquirers before a merger announcement. It finds that CEOs with financial expertise, long tenure and high reputation are associated with lower abnormal accruals in share-financed M&A deals. However, under real earnings management, only CEOs with financial expertise are associated with lower real earnings management in share-financed M&A deals. The correlations are statistically significant and consistently exist in the first year before the deal announcement. These findings are robust to different measures of abnormal accruals and real earnings activities and estimations employing different models. The evidence suggests that CEO characteristics have an impact on earnings management in the context of share-financed M&A and have some implications for practitioners.