Overconfidence or Entrenchment?The Analysis of Earnings Management and Manager’s Trading on Bad Bidding Firms

• Main Authors: Lee, Pohan, 李柏翰
• Other Authors: Chen, Miawjane
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/52787540158470090144

碩士 === 國立聯合大學 === 管理碩士學位學程 === 100 === This study aims to understand whether “bad merge” is a plausible motive behind the recent merger activity by examining the insider trades and their strategic behavior on earnings management of bid firm managers prior to merger announcements for 242 mergers from 2002 to 2007. If managers expected to that merge as “bad merger” they will be more willing to buy other firms for stock. At the same time they will be more willing to sell company stock in their personal portfolios. However, according to past empirical studies, positive relationship between discretionary revenue and insider sales can also be explained such that managers may have adopted passive and opportunistic strategies by trading their shares after higher earnings are reported regardless of earnings manipulation to overstating revenues and understating some operating expenses before they sell their own firms’ shares in the subsequent period. Using this simple prediction, this study show that bid-firm managers abnormally increase their insider sales and adjust discretionary revenue prior to bad mergers with Self-interest, whereas no such change is observed prior to bad merger with Overconfident. The increased willingness of self-interest of managers to sell stock prior to bad mergers provides preliminary evidence for the “Self-interest” motive behind the bad mergers.