Earnings management around UK open offers

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We examine the long run operating and stock price performance of UK open offer firms in the context of the earnings management hypothesis. We find that in the pre-offer period offer firms report significant improvements in their operating performance unrelated to cash flow performance. Results on return performance show that offer firms outperform various benchmarks in the pre-offer year but underperform up to four years after the offer. Regression results show that pre-offer discretionary current accruals predict the long-run post-offer return underperformance but do not predict the short-run reaction to SEO announcements. Our findings are more consistent with the earnings management hypothesis than with either the timing hypothesis or the managerial response hypothesis and suggest that investors do not take full account of the information available at the time of open offers.
Original languageEnglish
Pages (from-to)29-51
Number of pages22
JournalEuropean Journal of Finance
Issue number1
Publication statusPublished - Jan 2009


  • Earnings management
  • Open offers
  • Operating performance
  • Return performance
  • SEOs


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