Abnormal Accruals and Managerial Intent: Evidence from the Timing of Merger Announcements and Completions

We examine acquiring managers' opportunistic reporting behavior around stock-for-stock acquisitions. Using the timing of merger announcements and completions to infer managerial intent, we show that acquirers with the most inflated earnings tend to announce mergers on Fridays, and that they manage earnings several quarters before the merger announcement date. Friday announcers exhibit a stronger negative association between pre-merger announcement abnormal accruals and post-merger announcement market performance than non-Friday announcers. This effect is driven mainly by mergers that are completed relatively quickly after they are announced. Overall, the evidence supports the notion that some acquiring managers inflate earnings prior to announcing the mergers, and time the merger announcements to exploit investor inattention.