M&A-induced shifts in earnings management: Evidence from US acquirers

We examine earnings management (EM) following mergers and acquisitions (M&As), focusing on firms’ choice between accrual-based earnings management (AEM) and real earnings management (REM). Using a large sample of U.S. public acquirers, we find that firms strategically substitute AEM with REM following M&A completion. This shift is more pronounced among firms facing greater business complexity and analyst scrutiny, consistent with managers favoring less transparent forms of earnings manipulation in the post-merger environment. We further show that managerial and governance characteristics shape post-merger EM strategies. Firms led by highly capable managers exhibit greater use of REM, whereas institutional ownership and female CEO leadership are associated with lower REM. In addition, firms experiencing poorer M&A performance engage more intensively in REM, suggesting that pressure to justify acquisition outcomes influences reporting behavior. Overall, our findings highlight the important role of governance and leadership in shaping post-merger earnings management strategies and constraining opportunistic financial reporting during the integration period.