Earnings management and performance of acquiring companies in mergers and acquisitions in Brazil
DOI:
https://doi.org/10.1590/1808-057x20262462.enKeywords:
earnings management, mergers and acquisitions, economic performance, market performanceAbstract
This article investigated whether the economic and market performance of Brazilian companies after mergers and acquisitions
(M&As) was influenced by earnings management (EM) practices adopted before these operations. Domestic empirical
evidence shows that M&A synergy generation is negative, which may be caused by factors such as accounting EM practices
that occurred prior to these transactions. This study examines the relationship between EM practices and synergy generation
in M&A transactions in Brazil, filling this gap in the literature. This research is relevant because it demonstrates that managers’
opportunistic behavior, such as using EM practices before M&A transactions, can affect the expected synergies from these
transactions in Brazil. EM practices occurring in the preceding period are detrimental to synergy generation. They support
the agency hypothesis in the context of domestic M&As and can affect expectations, particularly those of shareholders. The
study analyzed 233 M&A transactions completed by 89 companies listed on B3 S.A. – Brasil, Bolsa, Balcão from 2010 to 2021.
The analysis used accounting data from the Refinitiv® database (2008–2023) and regression models estimated using ordinary
least squares. The results showed that accrual- and real activity-based EM practices before M&As reduced synergy gains, as
measured by economic performance metrics. However, neither type of practice significantly affected market performance.
These results imply that managers’ interests may have compromised expected synergy gains, as posited by agency theory.
This has implications for corporate governance and investor decision-making.
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