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Session Title: Economic Consequences of Disclosures
Presentation Date: Monday August 6, 2012
Presentation Time: 10:15 am-11:45 am
Tunneling through earnings management in stock for stock mergers
Yasuharu Aoki, Nagoya University of Commerce and Business
Pascal Nguyen, University of Technology Sydney
Mikiharu Noma, Hitotsubashi University
Kensuke Yabe, Tyukyo University
ABSTRACT: This paper examines earning management in stock for stock mergers which supposedly causes the expropriation of minority shareholders, or tunneling. In Japan, some acquiring firms would have the power to require their target firms to manage earnings downward in order to make the exchange ratios favorable for them. Using a sample of 134 target firms, we find that downward earnings management occurs when the acquiring firm ownership is within the range between 33.3% and 50.0% and is significantly related to the characteristic of executives. Our results imply that acquiring firms use their positions as controlling shareholders to expropriate minority shareholders of their target firms. To our knowledge, this is the new aspect of tunneling never discussed in prior research.
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