Research On The Impact Of Target Partys’Earnings Management On M&A Premium

Since 1993,"Baoyan Disturbance" has opened the prelude to the M&A of listed companies in China,the activity of China’s M&A market has been rising,and the total amount of M&A transactions has climbed higher and higher.However,The M&A premium is a key influencing factor for the success of M&A activities.The decision involves a complex game between the main party,the target party and the regulator.In this complex game of information asymmetry,the target party is usually an unlisted company,which has a strong incentive to carry out earnings management to increase its performance,thus achieving its own high valuation.Therefore,Studying the impact of the target party’s earnings management level on the M&A premium is of great significance to the acquirer’s M&A pricing and the supervision of the M&A.Based on the above background,this paper conducts an in-depth analysis and empirical test on the impact of the earnings management level of the target on the M&A premium.Firstly,from the perspective of information asymmetry theory and game theory,this paper analyzes in detail the existence and direction of the underlying party earnings management and the impact of the target party’s earnings management level on the M&A premium.Subsequently,this paper takes the target of major asset restructuring events of China’s A-share listed companies in 2015-2017 as the research sample,firstly using the cross-section Modified Jones Model,non-parametric T-test,and the multiple regression model of earnings management level to the targets’ earnings management to do the empirical research on targets’ earnings management behavior,and then based on the above empirical results,this paper deeply explores the impact of the target party’s earnings management level on the M&A premium by constructing two multiple regression models of M&A premium.Finally,the paper draws the following conclusions:(1)The target party in China’s major asset reorganization has carried out significant positive earningsmanagement one year before the first disclosure announcement;(2)M&A type has no significant impact on the target party’s earnings management level,but the target party’s asset-liability ratio and asset size significantly negatively affected the level of earnings management.The shareholding ratio of the largest shareholder of the target party significantly positively affected its earnings management level;(3)The target party’s earnings management level was significantly negatively correlated with the M&A premium,that is,the acquisition party can identify the earnings management behavior of the target party and make a reasonable assessment to adjust the purchase price;(4)The type of M&A significantly affects the assessment of the management level of the target party’s earnings,that is,in the horizontal merger,the assessment level of the target party’s earnings management level is lower.