Earnings management and performance of acquiring companies in mergers and acquisitions in Brazil

ABSTRACT

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.

Keywords:
earnings management; mergers and acquisitions; economic performance; market performance

RESUMO

Este artigo investigou se o desempenho econômico e de mercado de empresas brasileiras após as fusões e aquisições (F&A) foi influenciado por práticas de gerenciamento de resultados (GR) adotadas antes dessas operações. Apesar de as evidências empíricas nacionais mostrarem que a geração de sinergia com F&A é negativa, a causa dessa queda pode estar relacionada a fatores como as práticas de GR contábeis ocorridas antes desse processo. Nesse sentido, este trabalho preenche essa lacuna ao estudar as relações entre as práticas de GR e a geração de sinergia em processos de F&A no Brasil. A relevância desta pesquisa consiste em mostrar que atitudes oportunistas dos gestores, como utilizar práticas de GR nos períodos que antecedem as F&A, podem afetar a sinergia esperada com essas operações também no Brasil. As práticas de GR ocorridas no período anterior são prejudiciais para a geração de sinergia, corroboram a hipótese de agência no contexto das F&A nacionais e podem afetar as expectativas, especialmente dos acionistas. Foram utilizadas 233 F&A concluídas por 89 empresas listadas na B3 S.A. - Brasil, Bolsa, Balcão, no período de 2010 a 2021, utilizando dados contábeis da base Refinitiv® (2008 a 2023) e modelos de regressão estimados por mínimos quadrados ordinários. Os resultados indicaram que práticas de GR por accruals e real, antes das F&A, reduziram o ganho de sinergia representado por medidas de desempenho econômico. Ao contrário, ambos os tipos de práticas não afetaram significativamente o desempenho de mercado. Os achados sugerem que os ganhos esperados de sinergia podem ter sido comprometidos pelos interesses dos gestores, conforme preconiza a teoria da agência, o que traz implicações para a governança corporativa das empresas e a tomada de decisão dos investidores.

Palavras-chave:
gerenciamento de resultados; fusões e aquisições; desempenho econômico; desempenho de mercado

1. INTRODUCTION

Decisions regarding mergers and acquisitions (M&As) are critical to the success of companies and their managers. These transactions typically involve combining two or more entities through an acquisition or pooling of interests (Banseh & Khansalar, 2016; Ismail et al., 2011). This is an ongoing process for large companies seeking to grow and expand their businesses further (Verma & Kumar, 2024). The goal is to achieve synergy (Berkovitch & Narayanan, 1993).

Corporate performance is a key factor in understanding synergy following M&As (Verma & Kumar, 2024). Berkovitch and Narayanan (1993) state that M&As create synergies, generate economies of scale, expand operations, and reduce costs, at least in theory. In practice, though, things may not unfold as expected because M&As involve economically significant transactions that have the potential to create or destroy wealth (Cumming et al., 2023; Higgins, 2013).

The high failure rates suggest that, on average, M&As do not add value to the acquirer (Angeli et al., 2024; Eulerich et al., 2022), corroborating the view of wealth destruction. One reason for the failure to generate synergies may be the way acquiring companies purchase target companies.

When acquiring companies use their own shares to purchase a target company, managers may be incentivized to adopt earnings management (EM) practices, such as accelerating revenue recognition, deferring expenses, or manipulating accounting procedures. These practices aim to influence prices traded in capital markets and reduce the price paid for the M&A transaction (Erickson & Wang, 1999). Conversely, acquiring firms may use debt financing for cash M&As (Fischer, 2017), which may also serve as motivation to engage in EM to influence debt providers’ perceptions (Malikov & Zalata, 2024).

However, one consequence of EM practices prior to M&As is reduced expected synergies following the M&A. This reduction occurs from both economic (Mughal et al., 2021; Zhang, 2015) and market (Farooqi et al., 2017; Louis, 2004) perspectives. EM practices, such as front-loading revenues and cutting expenses before an M&A, are opportunistic and short-term. Therefore, these may reverse in the subsequent period. For example, revenues may decrease compared to the pre-M&A period. This can affect indicators used to measure synergy, such as profitability and return metrics.

Target company managers may also use EM practices to increase the market value of their shares and receive a premium when the acquiring company completes the acquisition. If this occurs, the target company’s managed accounting information will become part of the acquiring company’s accounting information upon completion of the M&A. This may contribute to a decline in the acquiring firm’s economic performance and affect its synergy measures, as evidenced by Campa and Hajbaba (2016) and Mughal et al. (2021) . However, due to insufficient information from target firms, this article did not address this aspect.

Assuming a reversal in the actions of acquiring companies’ managers regarding EM practices before and after M&A transactions, profits will decrease, affecting expected synergy measured in accounting and/or economic terms. The market may perceive these reduced profits and synergy, which could lower the stock price and affect the market value of the acquiring company. Thus, the research question that emerges from this article is: What is the relationship between the EM strategies of acquiring companies in M&A transactions and their subsequent economic and market performance in Brazil?

This article assesses whether the economic and market performance of acquiring firms in Brazil after M&A transactions is influenced by their EM practices before the transactions. Ellahie et al. (2025) report that M&As are among the most prominent types of corporate investments. From 1980 to 2018, publicly traded companies in the United States invested an average of US$92 million per year in M&As, representing 18% of their annual investments and 27% of their annual profits during that time.

In Brazil, M&A transactions totaled US$267 billion from 2010 to 2023, according to data from the Refinitiv® database used to prepare this article. These significant figures, along with Brazil’s institutional, cultural, and market characteristics used to evaluate M&A performance, continue to hold practical and academic importance (Ellahie et al., 2025).

The results presented in this article generally confirm the decline in acquiring firms’ performance when comparing periods following M&As with periods preceding them. This finding has been previously documented in the Brazilian context by Camargos and Barbosa (2010) , Motta et al. (2013) , Novaes et al. (2022) , and Vieira et al. (2017) . However, this study’s results go beyond previous findings by showing that EM practices, whether based on accruals or real activities, negatively affect the economic performance of acquiring firms following M&As.

Contrary to the international evidence, the results did not reveal a negative relationship between EM practices and market performance, as reported by Farooqi et al. (2017) , Louis (2004) , and Mughal et al. (2021) . These results suggest that structural differences among countries may influence market perceptions of EM practices during M&A transactions.

These findings suggest that opportunistic accounting practices may be associated with operational inefficiencies. This has implications for corporate governance and investor decision-making. Additionally, it contributes to the advancement of academic literature on the quality of accounting information in M&A processes.

2. THEORETICAL FRAMEWORK

The literature identifies three main motives for M&As: the synergy motive, the agency motive, and the hubris effect. The synergy motive posits that M&As occur due to the economic gains resulting from merging the resources of two companies. The agency motive posits that M&A transactions are undertaken to improve the welfare of acquiring firms’ managers at the expense of their shareholders. The hubris hypothesis suggests that managers misjudge target firms and engage in M&As even when no synergies are expected (Berkovitch & Narayanan, 1993).

This hypothesis assumes that managers of the acquiring firm are overly optimistic about their ability to generate wealth from an M&A transaction. Thus, they make an inflated offer for the target firm. Consequently, the acquiring firm’s shareholders do not benefit from these transactions (Mueller & Yurtoglu, 2007; Roll, 1986). There is merely a transfer of wealth from the acquiring firm to the target firm, with no synergy gains (Roll, 1986). Therefore, the hubris hypothesis assumes that there are no synergy gains in M&As.

From an agency perspective, when an owner (principal) delegates a decision-making role to one or more individuals (agents) and both parties are assumed to be utility maximizers, the agents may not act in the owner’s best interests (El Hajjar et al., 2023). Thus, even if synergies are possible, they may not materialize because the M&A was carried out in the managers’ own self-interest.

Therefore, the difference between the agency and hubris hypotheses lies in whether synergy can occur. According to the hubris hypothesis, this possibility does not exist. However, in the agency hypothesis, synergy is possible. Thus, this study focuses on the relationship between the EM practices of companies involved in M&As and the economic and market performance of acquiring firms in M&A processes from the perspectives of synergy and agency.

According to Damodaran (2005) , synergy is the additional value generated by combining two companies, creating opportunities unavailable to them if they operated independently. From an operational standpoint, synergy stems from the combined company’s operations and includes economies of scale, increased pricing power, profit margins, and growth potential. These operational synergies can affect margins, returns, growth, and the value of the companies involved in M&As.

However, the agency perspective may reduce the likelihood of generating synergies since agency problems are associated with conflicts of interest that can arise in situations involving multiple parties within an environment of information asymmetry, as in M&A situations (Jensen, 2005). Due to information asymmetry between acquiring and target companies, and the weight assigned to earnings reported in financial statements for decision-making, each side of the transaction may be incentivized to manipulate financial figures and accounts to maximize their respective outcomes in the deal (Erickson & Wang, 1999).

According to Healy and Wahlen (1999) , EM involves the judgment exercised by managers in financial reporting and structuring transactions to mislead certain stakeholders about the firm’s economic performance. In this sense, agency theory can explain the motivational aspect of EM practices in an M&A context because EM can be used by managers to obtain private gains and maximize their wealth. Consequently, this can lead to the destruction of shareholder wealth in M&As (Botsari & Meeks, 2008). The following section presents discussions regarding EM and performance in M&As.

2.1 EM and Performance in M&As

EM practices include bringing forward revenue, deferring or reducing expenses (such as those related to research and development), and changing accounting criteria (such as the calculation of depreciation and the recognition of provisions). These procedures are known as accrual-based earnings management (AEM). According to Antonio et al. (2023) , Botsari and Meeks (2008) , Erickson and Wang (1999) , Higgins (2013) , Louis (2004) , and Miranda et al. (2024) , when these practices are used in periods prior to M&As, it may be impossible for managers to replicate such practices, such as continuing to recognize revenues in advance, immediately following the M&A due to market conditions, customers’ ability to purchase similar quantities of products as in the period prior to the M&A, or the natural characteristic of accruals to reverse (Allen et al., 2013; Dechow et al., 2012).

Given this, the expected synergy may be overshadowed by AEM practices from the period before the M&A since the inability to replicate or reverse these practices after the M&A may affect profit margins, providing evidence of synergy (Damodaran, 2005).

Other practices, such as offering discounts to increase sales volume and/or increasing production to reduce the cost of goods sold in order to boost profits, are known as real earnings management (REM). REM aims to alter a company’s operational activities to boost current-period results (Gunny, 2010) and can affect cash flow (Roychowdhury, 2006).

In M&A contexts, managers may prefer REM strategies because accrual practices are easier for the market, audit firms, and regulatory agencies to detect (Cohen & Zarowin, 2010; Graham et al., 2005; Zang, 2012). However, since REM practices involve operational decisions affecting companies’ cash flow rather than a mere change in accounting policy, they may be irreversible in the period following the M&A. For instance, reducing administrative expenses prior to an M&A to boost earnings may be difficult to reverse afterward. Furthermore, an increase or decrease in the cost of goods sold from one period to the next may involve a change in the company’s production capacity; the cost-benefit ratio of such a decision may be inefficient.

If these strategies are implemented with the aim of boosting earnings in the pre-M&A period, however, a reversal trend can be expected in the post-M&A period, assuming there is no further incentive once the M&A has been completed. Consequently, economic indicators and evidence of synergy are expected to deteriorate in the post-M&A period compared to the pre-M&A period.

Some evidence from different contexts shows that economic performance after an M&A is worse than before the transaction (Bertrand & Betschinger, 2012; Borodin et al., 2020; Mantravadi & Reddy, 2008; Rao-Nicholson et al., 2016; Yeh & Hoshino, 2002). While these studies were conducted in contexts not easily comparable to Brazil, domestic research shows that economic and financial performance remains stable or declines in the post-M&A period (Angeli et al., 2024; Camargos & Barbosa, 2010; Motta et al., 2013; Novaes et al., 2022; Vieira et al., 2017).

However, since the objective of this study is to evaluate M&A performance, with synergy as the driving force behind such transactions, it is expected that synergistic gains, such as increased sales and reduced costs, will be reflected in companies’ profits following an M&A. The presence of opportunistic EM practices between the pre- and post-M&A periods, however, may affect the generation of such synergy.

EM occurs when managers alter financial statements using their judgment to mislead certain stakeholders about the company’s true financial condition for a specific objective (Healy & Wahlen, 1999; Schipper, 1989). Thus, it can be expected that EM practices, whether through accruals or real decisions made during the pre-M&A period, will affect earnings and measures of economic performance during the post-M&A period. Thus, the following hypotheses are proposed:

H₁: Acquirers’ AEM practices prior to an M&A negatively influence the economic performance of acquiring firms following the M&A.

H₂: Acquirers’ REM practices prior to an M&A negatively influence the economic performance of acquiring firms following the M&A.

From a market perspective, the potential deterioration of financial indicators, along with the concerns of acquiring firms’ shareholders that M&A motives may not align with their best interests (El Hajjar et al., 2023), suggests that synergies measured in capital market returns may also fail to materialize.

In the contemporary economy, most companies are organized to create value for their shareholders or owners. To achieve this, companies’ decisions must be perceived as appropriate by the market, thereby increasing the attractiveness of their shares and raising their market value (Frezatti, 1998). Thus, M&A decisions must be perceived as wealth-generating. Consequently, the market value of shares in companies engaging in business combinations should increase if the M&A transactions are successful.

However, Erickson and Wang (1999) postulate that the capital market expects a company to inflate its earnings before an M&A transaction involving its shares. Consequently, the market discounts the company’s stock price when the M&A is announced, regardless of whether the company engages in EM. Anticipating this market behavior, the acquirer’s best response is to engage in EM.

In different contexts, Farooqi et al. (2017) , Huang et al. (2019) , and Louis (2004) documented AEM and REM practices in companies leading up to M&A announcements. These studies also found a negative relationship between these practices and companies’ market performance post-M&A, partially due to the reversal of these practices (Louis, 2004).

In Brazil, Camargos and Barbosa (2010) found that M&A deals from 1996 to 2004 created shareholder value. However, Angeli et al. (2024) found no evidence of a relationship between M&As and the performance of Brazilian banks. In addition to the lack of consensus among the results, the possibility that EM practices existed prior to M&As and influenced market returns after the M&A process remains undiscussed in the national context. With this in mind, the following hypotheses are proposed:

H₃: Acquirers’ AEM practices prior to an M&A negatively influence the stock market performance of acquiring firms following the M&A.

H₄: Acquirers’ REM practices prior to an M&A negatively influence the stock market performance of acquiring firms following the M&A.

As Antunes and Martins (2007) point out, evaluating corporate performance is a complex task given the breadth of the concept. This stems from the different approaches and methodologies used, depending on the objectives of those involved in the evaluation process. However, M&A performance can be measured using accounting metrics related to profitability, return on assets, business turnover, and market indicators, which are commonly used in research on this topic (see Table 1). Performance in the post-M&A period can be compared with performance in the pre-M&A period (Malik et al., 2014).

Table 1
Definition of the economic and market performance variables used in this study

Variable	Definition	Abbreviation	Calculation method	References
Economic performance	Return on assets	ROA	Operating income divided by total assets from the previous year	Bonfim & Callado (2016) , Camargos & Barbosa (2010) , Heron & Lie (2002) , Yeh & Hoshino (2002)
	Return on equity	ROE	Net income divided by shareholders’ equity	Bonfim & Callado (2016) , Camargos & Barbosa (2010) , Ismail et al. (2011) , Yeh & Hoshino (2002)
	Gross margin	GM	Gross profit divided by net sales	Camargos & Barbosa (2010)
	Operating margin	OM	Operating income divided by net sales	Camargos & Barbosa (2010)
	Net margin	NM	Net income divided by net sales	Borodin et al. (2020) , Camargos & Barbosa (2010) , Rao-Nicholson et al. (2016)
	Asset turnover	AT	Net sales divided by total assets from the previous year	Camargos & Barbosa (2010)
Market performance	Market-to-book	MTB	Market value divided by shareholders’ equity	Camargos & Barbosa (2009) , Mughal et al. (2021) , Sudarsanam & Mahate (2003) , Tampakoudis & Anagnostopoulou (2020)
	Tobin’s Q	TQ	Market value plus debt divided by total assets	Camargos & Barbosa (2009), Mughal et al. (2021) , Sudarsanam & Mahate (2003) , Tampakoudis & Anagnostopoulou (2020)
	Stock returns	RET	Current price minus previous price divided by previous price	Malta & Camargos (2016)

• Source: Prepared by the authors based on the literature reviewed.

Furthermore, the four hypotheses tested in this article are based on the assumption that companies are motivated to engage in EM practices regardless of the payment method used in M&As. Malikov and Zalata (2024) note that many studies on this topic assume that the payment method used in M&As influences a firm’s motivation to engage in EM practices. These studies argue that acquiring firms that use their own shares to acquire the target firm are more incentivized to increase profits before the M&A announcement because higher profits affect market valuation, which can lead to a premium on the shares and reduce the cost of acquiring the target firm.

However, this assumption excludes the possibility that acquiring firms using cash might engage in EM practices. The literature has paid limited attention to acquiring firms using cash (Malikov & Zalata, 2024), despite their prevalence (Meng & Vijh, 2021). Additionally, acquiring firms can fund M&A transactions with cash, which may motivate them to engage in EM practices to influence the perception of debt providers, thereby securing cash resources (Malikov & Zalata, 2024).

3. METHODOLOGY

3.1 Sample Definition

The accounting information required for this study was collected in annual form from 2008 to 2023 from Refinitiv®, which considers the complete adoption of International Financial Reporting Standards (IFRS). This is because information from companies’ Statements of Cash Flows (SCFs) is necessary for calculating total accruals in M&A contexts, as suggested by Hribar and Collins (2002) . Additionally, since the analysis focuses on changes in performance between periods before and after M&A events, this study considered such events that occurred between January 1, 2010, and December 31, 2021.

The sample selection criteria in this study are similar to those used by Botsari and Meeks (2008) , Farooqi et al. (2017) , Fasipe and Sun (2020) , and Higgins (2013) . The criteria include the following requirements: i) acquiring firms must be listed on B3 S.A. - Brasil, Bolsa, Balcão; ii) they must acquire at least 50% of the target firm’s shares; (iii) they must not be in the financial sector (banks, insurers, or investment funds) since these companies are subject to different legislation and operate in regulated sectors with different accounting standards and charts of accounts, which may affect the accrual calculation and introduce bias into the analysis; (iv) the M&A transactions must be completed during the study period; and (v) they must be paid for with shares, cash, or both. The number of acquiring companies used in this study is presented in Table 2.

Table 2
Sample definition (publicly traded acquiring firms)

Description	n
Initial sample (number of M&As from January 1, 2010, to December 31, 2021) (publicly traded acquiring companies)	1,318
Exclusions
Uncompleted transactions	479
Percentage of shares held after the M&A below 50%	35
Transactions in the financial sector	148
Transactions without a disclosed transaction value	278
Transactions with other or unknown payment method	38
Transactions by acquiring companies with unavailable accounting information	107
Total transactions processed	233
Number of acquiring companies	89
Payment with cash and stock (combination)	19
Payment in stock	14
Payment in cash	200
Total transactions (by type of acquisition)	233
Privately held target	219
Publicly traded target	14

• M&A = mergers and acquisitions.
• Source: Prepared by the authors based on information obtained from Refinitiv®.

Table 2 shows that from January 1, 2010, to December 31, 2021, 1,318 M&A transactions took place in Brazil involving publicly traded acquiring companies and publicly and privately held target companies. After applying the exclusion criteria, however, the sample consisted of 233 deals executed and completed by 89 different companies. Of the sample used in this article, the majority of M&A transactions (86%) are settled in cash, while only 14% involve acquiring companies’ shares, either fully or partially. This corroborates the findings of Meng and Vijh (2021) .

Table 1 presents the definitions of the economic and market performance variables used in this article, in accordance with the supporting literature.

The next subsection discusses the econometric models used in this study. Stata® software was used to analyze the data, perform validation tests, and estimate the regression coefficients. Continuous quantitative variables were winsorized at the 1% and 99% levels to limit the effect of outliers.

3.2 Econometric Models for EM Analysis

To obtain a proxy for EM using accruals, the performance-matching model developed by Kothari et al. (2005) was chosen. This model suggests that accrual measures should be estimated by considering firms’ recent performance, in this case return on assets (ROA). Dechow et al. (2012) also recommend including the lagged accruals variable in statistical models examining these practices. This improves the models’ specifications by approximately 40% due to the inherent property of accruals: their reversal in subsequent periods.

The dependent variable in this model (Equation 1), total accruals (TAC), was calculated as the difference between net income (NI) and operating cash flow (OCF). In many cases, authors choose to calculate TAC using working-capital accounts from the balance sheet (BS). However, in M&A transactions, where one company acquires or merges with another, working-capital accounts, such as inventory, accounts receivable, and accounts payable, tend to be influenced by the consolidation of the companies’ financial statements. Thus, Hribar and Collins (2002) emphasize in studies focusing on M&As that it would be prudent for researchers to obtain accrual measures using information derived directly from the SCF rather than approximations based on the BS. Considering M&A events, Boina and Macedo (2018) corroborate this idea in the Brazilian context.

$$\frac{{TAC}_{it}}{A_{it-1}}={\beta }_0+{\beta }_1\left(\frac{1}{A_{it-1}}\right)+{\beta }_2\frac{{(∆REV}_{it}-{∆AREC}_{it}}{A_{it-1}})+{\beta }_3(\frac{{PPE}_{it}}{A_{it-1}})+{\beta }_4\frac{{NI}_{it}}{A_{it-1}}+{\beta }_5\frac{{TAC}_{it-1}}{{TA}_{it-2}}+{\epsilon }_{it}$$ (1)

where 𝑇𝐴𝐶 𝑖𝑡 is the TAC calculated as the difference between NI and OCF, ∆𝑅𝐸𝑉 𝑖𝑡 is the change in net revenue, ∆𝐴𝑅𝐸𝐶 𝑖𝑡 is the change in accounts receivable, 𝑃𝑃𝐸 𝑖𝑡 is fixed assets, 𝑇𝐴 𝑖𝑡−1 is total assets; the β’s are the estimated model coefficients, 𝜀 𝑖𝑡 are the model error terms, i denotes each unit (firm), and t is time (year).

To detect EM based on real activities, this study uses statistical models developed by Roychowdhury (2006) . These models examine patterns of OCFs, selling, general, and administrative expenses (SG&A), and production costs (PROD). The residuals from equations 2-4 represent the abnormal level of a firm’s activities and serve as proxies for real EM. In this study, they are referred to as AOCF, ASG&A, and APROD.

$$\frac{{OCF}_{it}}{A_{i,t-1}}={{\beta }_0+\beta }_1\frac{1}{A_{i,t-1}}+{\beta }_2\frac{{REV}_{it}}{A_{i,t-1}}+{\beta }_3\frac{{∆REV}_{it}}{A_{i,t-1}}+{\epsilon }_{it}$$ (2)

$$\frac{{SG\&A}_{it}}{A_{i,t-1}}={{\beta }_0+\beta }_1\frac{1}{A_{i,t-1}}+{\beta }_2\frac{{REV}_{it-1}}{A_{i,t-1}}+{\epsilon }_{it}\mathrm{}$$ (3)

$$\frac{{PROD}_{it}}{A_{i,t-1}}={{\beta }_0+\beta }_1\frac{1}{A_{i,t-1}}+{\beta }_2\frac{{REV}_{it}}{A_{i,t-1}}+{\beta }_3\frac{{∆REV}_{it}}{A_{i,t-1}}+{\beta }_4\frac{{∆REV}_{it-1}}{A_{i,t-1}}+{\epsilon }_{it}$$ (4)

where PROD is the cost of goods sold plus change in inventory, A is total assets, REV is the net revenue, and ΔREV is the change in REV.

Some authors, including Fasipe and Sun (2020) , Gunny (2010) , Huang et al. (2019) , Pimenta (2024) , Reis et al. (2015) , and Zang (2012) , have suggested that various REM practices may be interrelated. Following these authors, and aiming to mitigate potential measurement errors (Pimenta, 2024), this study constructs an aggregate measure of the three REM proxies, AOCF, ASG&A, and APROD. This aggregate measure is referred to as REM in this study, as shown in Equation 5.

$${REM}_{it}={\&\#091;\left(-1\right)*(AOCF}_{it})\&\#093;+{\&\#091;\left(-1\right)*ASG\&A}_{it}\&\#093;+{(APROD}_{it})$$ (5)

The AOCF and ASG&A variables are multiplied by -1, such that higher values indicate the use of SG&A and sales management practices affecting OCF to increase profit. The APROD variable does not need to be multiplied by -1 because a higher residual value indicates a greater quantity produced or acquired by the firm.

Equations 1-4 were estimated using the ordinary least squares method with a cross-sectional design by sector and year, as described by Dechow et al. (2012) and Roychowdhury (2006) . This method took into account the 89 acquiring firms in the sample. The REM proxies, which are the residuals from Equations 2-4, were substituted into Equation 5. This yielded an aggregate measure of REM, which was identified and tabulated for the time of the M&A. Using this dataset, the AEM and REM proxies could be identified for the year prior to the M&A. The analysis was also conducted by considering the second year relative to the year before the M&A.

3.3 Econometric Models for Testing the Research Hypotheses

The hypotheses proposed in this study were tested using statistical models adapted from the following sources: Bonfim and Callado (2016) ; Huang et al. (2019) ; Mughal et al. (2021) ; and Zhang (2015) . These models are presented below. The AEM and REM proxies were used in Equations 6 and 7, which were obtained by estimating Equations 1 and 5 of this article. Equations 6 and 7 were estimated using ordinary least squares with sector controls and standard errors clustered by firm.

$${\Delta Syn\left(E\right)}_i={\beta }_0+{\beta }_1{EM}_{Ai}+{\beta }_2{Ln\left(deal\right)}_i+{\beta }_3{PubTarg}_i+{\beta }_4{MTB}_i+{\beta }_5{DEBT}_i+{\beta }_6{STR}_i+{\beta }_7{GDP}_i+{SECTOR}_i+{\epsilon }_i$$ (6)

$${\Delta Syn\left(M\right)}_i={\beta }_0+{\beta }_1{EM}_{Ai}+{\beta }_2{Ln\left(deal\right)}_i+{\beta }_3{PubTarg}_i+{\beta }_4{DEBT}_i+{\beta }_5{OCF}_i+{\beta }_6{STR}_i+{\beta }_7{GDP}_i+{SECTOR}_i+{\epsilon }_i$$ (7)

where 𝛥𝑆𝑦𝑛 𝐸 𝑖 is the proxy for the acquiring firm’s economic performance, measured by ΔGM, ΔOM, ΔNM, ΔROA, ΔROE, and ΔAT in the year following the M&A announcement relative to the year preceding it, 𝛥𝑆𝑦𝑛(𝑀) 𝑖 is the proxy for the acquiring firm’s market performance, measured by ΔMTB, ΔTQ, and the return on shares (RET) for the period following the M&A relative to the period preceding it; 𝐸𝑀 𝐴𝑖 is the proxy for the acquiring firm’s AEM and REM (pre-M&A); 𝐿𝑛 𝑑𝑒𝑎𝑙 𝑖 is the natural logarithm of the deal value; 𝑃𝑢𝑏𝑇𝑎𝑟𝑔 𝑖 is the dummy variable that takes the value of 1 if the M&A involved a publicly traded target company, and 0 otherwise; 𝑀𝑇𝐵 𝑖 is the market value of the acquiring company’s shares divided by its shareholders’ equity, 𝐷𝐸𝐵𝑇 𝑖 is the acquiring company’s indebtedness measured by the ratio of interest-bearing liabilities to total assets, 𝑂𝐶𝐹 𝑖 is the acquiring company’s OCF divided by total assets, 𝑆𝑇𝑅 𝑖 is a dummy variable that takes the value of 1 if the M&A transaction involved companies in the same economic sector and 0 otherwise, and 𝐺𝐷𝑃 𝑖 is the annual percentage change in gross domestic product from the year of the M&A relative to the year prior. All continuous variables were measured in the year prior to the M&A.

For hypotheses H₁ to H₄ not to be rejected, the coefficient β1 in Equations 6 and 7 must be less than 0 and statistically significant in both equations. Furthermore, the control variables market-to-book (MTB), DEBT, and OCF were used based on studies of economic and market performance in M&As (Farooqi et al., 2017; Huang et al., 2019; Louis, 2004; Mughal et al., 2021). MTB, DEBT, OCF, and GDP represent growth opportunities, corporate indebtedness, operating cash flow available to the firm, and economic development, respectively. These variables are considered to influence firms’ economic and/or market performance.

Other control variables were included in the model, such as the status of the acquired company (whether publicly or privately held; PubTarg), the size of the deal (Lndeal), and transactions within the same sector (STR). Since privately held companies are less exposed to public scrutiny, M&A deals would only be finalized after synergies have been generated (Conn et al., 2005; Muehlfeld et al., 2011). M&A deals involving large sums may result in higher-than-expected payments, which may cause such deals to fail to generate synergies. Conversely, M&As between companies in the same industry may facilitate the realization of synergies because they can complement the acquiring company’s operations (Conn et al., 2005; Muehlfeld et al., 2011).

4. RESULTS AND DISCUSSION

4.1 Descriptive Statistics

As shown in Table 3, the most significant sectors in terms of the number of M&A deals are consumer goods, energy, industrial goods, and basic materials. Additionally, cash payments are prevalent in the M&A transactions, as indicated by Meng and Vijh (2021) .

Table 3
Sectoral distribution of mergers and acquisitions

Sector	n	Total (%)	Form of payment
			Stock	Mixed	Cash
Cyclical consumption	20	8.6	1	2	17
Non-cyclical consumption	42	18.0	3	7	32
Energy	44	18.9	0	2	42
Health	19	8.2	2	3	14
Technology	15	6.4	0	0	15
Industrial goods	34	14.6	3	1	30
Basic materials	21	9.0	3	1	17
Construction	25	10.7	1	1	23
Retail	10	4.3	1	1	8
Other	3	1.3	0	1	2
Total	233	100.0	14	19	200

• Source: Prepared by the authors based on information from Refinitiv®.

As shown in Table 4, the average change in the economic performance variables in the year following the M&A was smaller and statistically significant compared to the average value of these variables in the year prior to the M&A. These results were similar when analyzing the second year after the M&A, except for the gross margin (GM) variable. The results demonstrate that acquiring firms’ economic performance deteriorates after an M&A, consistent with national and international research on the topic (Bertrand & Betschinger, 2012; Borodin et al., 2020; Camargos & Barbosa, 2010; Mantravadi & Reddy, 2008; Motta et al., 2013; Novaes et al., 2022; Rao-Nicholson et al., 2016; Yeh & Hoshino, 2002).

Table 4
Descriptive statistics of the variables used

	1 year after M&A				2 years after M&A
Variables	1st quartile	Median	Mean	3rd quartile	1st quartile	Median	Mean	3rd quartile
Economic Performance
VROA	-0.073	-0.010***	-0.021***	0.026	-0.077	-0.015***	-0.028***	0.013
VROE	-0.130	-0.022***	-0.132**	0.059	-0.170	-0.051***	-0.212***	0.030
VGM	-0.050	-0.008**	-0.012**	0.031	-0.050	-0.003	-0.008	0.038
VOM	-0.077	-0.010***	-0.021**	0.028	-0.059	-0.010**	-0.028**	0.030
VNM	-0.070	-0.017***	-0.009	0.021	-0.093	-0.029***	-0.037**	0.021
VAT	-0.198	-0.045***	-0.062***	0.098	-0.260	-0.088***	-0.107***	0.058
Market performance
RET	-0.347	0.117***	0.198***	0.554	-0.255	0.153***	0.345***	0.878
VMTB	-1.198	-0.138***	-4.348**	0.375	-0.996	-0.172***	-5.334***	0.440
VTQ	-0.324	-0.040***	-0.269***	0.132	-0.391	-0.088***	-0.284***	0.145
Proxies for earnings management
AEM	-0.042	-0.017***	-0.014***	0.007	-0.053	-0.025***	-0.021***	0.007
REM	0.051	0.239***	0.331***	0.459	0.010	0.122***	0.266***	0.411

• M&A = mergers and acquisitions; AEM = discretionary accruals of the acquiring company; REM = real earnings management; RET = stock return one to two years after the year preceding the M&A; VAT = change in asset turnover; VGM = change in gross margin; VNM = change in net margin; VOM = change in operating margin; VMTB = change in market-to-book ratio; VTQ = change in Tobin’s Q; VROA = change in return on assets; VROE = change in return on equity.
• *** = significant at the 1% level; ** = significant at the 5% level.
• Source: Prepared by the authors.

Regarding market performance, changes in MTB and Tobin’s Q (TQ) were, on average, negative and statistically significant compared to the pre-M&A period. This finding held true when comparing the second year after the M&A to the year prior. These results align with those of Farooqi et al. (2017) , Huang et al. (2019) , and Louis (2004) .

The RET between one and two years following the M&A, relative to the year prior to the M&A, was, on average, positive and statistically significant. This suggests that, on average, investors who held shares in the year prior to the M&A and kept them in their portfolios saw an increase in the price of their shares following the M&A process. However, it is well known that the market prices stocks based on expectations. Therefore, despite this evidence, it is possible that factors other than the M&A influenced these expectations and consequently led to an increase in stock prices.

Examining the EM proxies reveals that AEM was negative and statistically significant before and after the M&As. This suggests that EM practices remained similar before and after the M&As, albeit with a focus on reducing earnings. In contrast, the REM proxies remained positive before and after the M&As. Thus, it can be inferred that companies use AEM and REM practices in a complementary manner since AEM was negative and REM was positive. These results support the views of Cohen and Zarowin (2010) , Graham et al. (2005) , and Zang (2012) that, in contexts with heightened scrutiny from certain market players, such as audit firms, financial intermediaries, and other M&A stakeholders, companies tend to shift toward real management practices.

Table 5 shows negative, statistically significant correlations between AEM practices and variables representing economic performance. Specifically, the change in ROA between the period following the M&As and the preceding period has a negative correlation of 0.49 with AEM. This suggests that the greater the implementation of AEM practices, the greater the negative difference between the ROA of the period following the M&A and the preceding period, with the ROA of the post-M&A period being lower.

Table 5
Correlation among the variables used

Variables	AEM	REM	VROA	VROE	VGM	VOM	VNM	VMTB	VTQ	VAT	RET
AEM	1.00
REM	0.19**	1.00
VROA	-0.49**	-0.22**	1.00
VROE	-0.02	0.02	0.43**	1.00
VGM	-0.19**	-0.01	0.47**	0.28**	1.00
VOM	-0.37**	-0.05	0.71**	0.41**	0.69**	1.00
VNM	-0.45**	-0.01	0.42**	0.14**	0.46**	0.69**	1.00
VMTB	-0.04	-0.05	0.25**	0.52**	-0.14**	-0.00	-0.26**	1.00
VTQ	0.07	-0.03	0.16**	0.09	0.02	0.07	-0.00	0.16**	1.00
VAT	-0.29**	-0.29**	0.57**	0.23**	0.08	0.24**	0.18**	0.15**	0.29**	1.00
RET	0.08	-0.08	0.17**	0.09	0.09	0.13	0.11	0.04	0.51**	0.14	1.00

• Note: The variables are described in Table 4.
• ** = significant at the 5% level.
• Source: Prepared by the authors.

Similarly, there is a negative correlation between AEM practices and variables representing changes in acquiring companies’ profitability, such as changes in gross margin (VGM), operating margin (VOM), net margin (VNM), and asset turnover (VAT). REM practices are also negatively correlated with changes in ROA (VROA) and VAT. This means that the higher the EM carried out by acquiring firms, the lower the economic synergy gains following the M&A, as represented by the profitability and return on assets variables.

However, no significant relationship was observed between EM practices and changes in market performance, as measured by changes in MTB (VMTB), TQ (VTQ), and RET. In other words, the results suggest that EM practices, which negatively impact economic performance, are irrelevant when analyzing changes in market performance.

4.2 Analysis of Research Hypotheses

Table 6 presents the coefficients associated with Equation 6 to test hypotheses H1 and H2. The analysis considers the variables that showed a significant decline between the periods following and preceding the M&A. It also takes into account one and two years after the M&A, as shown in Table 4. However, it should be noted that the results presented include only cases in which the AEM and REM variables were significant in the estimates to optimize interpretation of the data.

Table 6
Coefficients of Equation 6 - Test of the hypotheses H₁ and H₂ - Economic performance

Variables	VROA¹	VNM¹	VROA²	VAT²	VROA¹	VROA²	VAT²
AEM	-0.489**	-1.412**	-0.740***	-1.786***
REM					-0.044*	-0.055**	-0.210*
LNDEAL	-0.000	0.000	-0.001	-0.012	-0.000	-0.001	-0.009
PUBTARG	-0.010	-0.032	0.005	0.072	-0.008	0.008	0.060
MTB	-0.000***	-0.001**	-0.001***	-0.001***	-0.000***	-0.000***	-0.001*
DEBT	0.050	-0.221	0.004	0.201	0.106	0.090	0.403
STR	-0.005	0.009	0.003	-0.021	-0.012	-0.006	-0.051
GDP	-0.002	-0.011**	-0.002	0.000	-0.003	-0.003	-0.000
Intercept	-0.038	-0.110	-0.050	-0.221**	-0.021	-0.030	-0.139
VIF test³	1.99	2.00	1.99	2.00	2.01	2.01	2.02
Reset test	1.37	35.61***	0.07	0.81	1.77	0.47	1.35
Adjusted R²	0.292	0.255	0.360	0.354	0.254	0.272	0.338
Observations	194	195	194	195	193	193	195

• Note: The other variables are defined in Table 4.
• Eq. 6: ${\Delta Syn\left(E\right)}_i={\beta }_0+{\beta }_1{EM}_{Ai}+{\beta }_2{Ln\left(deal\right)}_i+{\beta }_3{PubTarg}_i+{\beta }_4{MTB}_i+{\beta }_5{DEBT}_i+{\beta }_6{STR}_i+{\beta }_7{GDP}_i+{\epsilon }_i$
• DEBT = indebtedness of the acquiring firm measured by the ratio of interest-bearing liabilities to total assets; LNDEAL = natural logarithm of the transaction value; MTB = market-to-book ratio; GDP = annual percentage change in gross domestic product; PUBTARG = dummy variable that takes the value of 1 if the merger and acquisition (M&A) involved a publicly traded target company, and 0 otherwise; STR = dummy variable that takes the value of 1 if the M&A occurred between companies in the same economic sector.
• ¹ Change in performance calculated between the year following the M&A and the year preceding it; ² Change in performance calculated between the second year following the M&A and the year preceding it; ³ Test of the average variance inflation factor (VIF) controlled for sector.
• *** = significant at the 1% level; ** = significant at the 5% level; * = significant at the 10% level.
• Source: Prepared by the authors.

Table 7
Coefficients of Equation 7 - Test of hypothesis H₃ - Market performance

Variables	VMTB¹	VTQ¹	RET¹	VMTB²	VTQ²	RET²
AEM	45.922	3.209	0.710	25.323	2.833	0.929
LNDEAL	0.530	-0.103*	-0.046	0.781	-0.102*	-0.038
PUBTARG	2.793	0.380	0.695**	-0.079	0.048	0.353**
DEBT	39.534*	1.724**	-0.373	36.529*	1.735**	-0.358
OCF	-74.350	2.844**	1.774**	-76.599	1.975*	1.405*
STR	3.770	0.230**	0.185	3.120	0.248	0.185
GDP	0.390	0.058*	0.015	0.329	0.041	-0.018
Intercept	5.987	-0.156	0.331	-13.659	-0.301	0.265
VIF³ test	2.03	1.97	2.04	2.03	1.97	2.04
Reset test	226.41***	41.73***	5.40***	456.64**	49.04***	0.44
Adjusted R²	0.490	0.437	0.241	0.498	0.428	0.177
Observations	196	213	174	196	213	174

• Eq. 7: ${\Delta Syn\left(M\right)}_i={\beta }_0+{\beta }_1{EM}_{Ai}+{\beta }_2{Ln\left(deal\right)}_i+{\beta }_3{PubTarg}_i+{\beta }_4{DEBT}_i+{\beta }_5{CFO}_i+{\beta }_6{STR}_i+{\beta }_7{GDP}_i+{\epsilon }_i$
• Note: The variables are described in Tables 4 and 6.
• VIF = variance inflation factor.
• ¹ Change in performance calculated between the year following the M&A and the year preceding it; ² Change in performance calculated between the second year following the M&A and the year preceding it; ³ Test of the average variance inflation factor (VIF) controlled for sector.
• *** = significant at the 1% level; ** = significant at the 5% level; * = significant at the 10% level.
• Source: Prepared by the authors.

Table 6 shows that AEM practices from the year prior to the M&A reduce the synergy gains represented by the VROA and VNM variables when the analysis compares the year following the M&A to the year preceding it. Focusing on the difference in economic performance between the second year after the M&A and the year before, we observe that AEM practices continue to negatively affect the economic performance of acquiring firms, as represented by VROA and VAT. These results align with those of Heron and Lie (2002) and the correlation analysis. They also support the decision not to reject hypothesis H1.

EM practices may involve managers’ decisions to accelerate sales recognition. A decline in sales during the post-M&A period compared to the previous period may affect the profitability and return on assets of acquiring firms, as represented by NM and ROA in this case. Furthermore, when net sales fall short of expectations, this may also negatively affect AT, as was the case.

REM practices in the year prior to the M&A reduce synergy gains, as represented by VROA and VAT when considering one and two years after the M&A. This corroborates the correlation analysis. Therefore, hypothesis H2 should not be rejected. Since ROA is calculated by dividing operating income by total assets, it is susceptible to the influence of REM practices, such as granting temporary discounts to increase sales volume or reducing the cost of goods sold through higher-than-expected production, which can affect operating income. Thus, it is natural and expected that REM practices would affect this performance metric.

REM strategies include granting excessive commercial discounts or offering more flexible credit terms to bring forward revenue. While these practices temporarily increase sales volume, they tend to reduce profitability and increase capital tied up in accounts receivable. This leads to growth in current assets without a sustainable increase in operating income and may reduce AT. It is also worth noting that although the OM and NM were lower in the period following the M&A than in the preceding period, this decline was not influenced by REM practices.

Regarding the control variables, it is evident that companies’ debt levels do not translate into better economic performance. In the Brazilian context, the reason for this may be the high interest rates in the economy and the fact that the effect of financing on profitability indicators is offset by financial expenses. The MTB indicator negatively affects companies’ economic performance because those involved in M&A processes may signal that growth expectations have not yet materialized.

The business-related control variables were not statistically significant. For M&A transactions involving publicly traded target companies, more detailed information about the transaction is required than for those involving privately held target companies. This may cause managers to base their decisions on projections about the outcomes of these deals, which may not materialize. This is done to avoid exposure in the capital markets due to the withdrawal of a previously announced deal (Conn et al., 2005; Muehlfeld et al., 2011). It was expected that the coefficient associated with the PUBTARG variable would be negative and statistically significant. However, this did not occur in this study, possibly due to the small number of M&A transactions involving publicly traded target companies.

Conversely, it was expected that companies involved in M&As within the same industry would exhibit superior operating performance since such M&As typically lead to operating gains related to economies of scale. Additionally, it was expected that high-value M&As would negatively affect acquiring firms’ operational performance because significant values might indicate overvaluation, which could impact synergy gains. However, the coefficients associated with these variables were not significant, suggesting that the values involved in the transactions were in line with the expected economic benefits.

To test hypotheses H3 and H4 of this article, Tables 7 and 8 present the coefficients associated with Equation 7. This equation analyzes the influence of AEM and REM practices on the market performance of acquiring firms in M&A transactions.

When the dependent variables represented market performance (VMTB, VTQ, and RET), the variable of interest (AEM) was not statistically significant, regardless of whether the comparison was made one or two years after the M&As. Therefore, it can be concluded that AEM practices do not affect market performance following M&As, thereby rejecting hypothesis H3.

The results in Table 8 show that REM practices do not influence the variables used in this article - MTB, TQ, and RET - to measure market performance. Consequently, hypothesis H4 is rejected.

Table 8
Coefficients of Equation 7 - Test of hypothesis H₄ - Market performance

Variables	VMTB¹	VTQ¹	RET¹	VMTB²	VTQ²	RET²
REM	-11.460	0.275	0.123	-9.301	0.196	0.028
LNDEAL	0.339	-0.111**	-0.047	0.665	-0.110**	-0.040
PUBTARG	2.628	0.409	0.699**	-0.312	0.072	0.350**
DEBT	33.512*	1.473**	-0.429	32.934*	1.509**	-0.437
OCF	-63.090	2.895**	1.774**	-68.555*	2.042*	1.500*
STR	4.349	0.282**	0.196*	3.363	0.292	0.199
GDP	0.621	0.062**	0.015	0.494	0.045	-0.018
Intercept	12.021	-0.233	0.271	-8.852	-0.345	0.251
VIF³ test	2.05	2.00	2.08	2.05	2.00	2.08
Reset test	250.76***	45.96***	5.34***	603.25***	54.66***	0.04
Adjusted R²	0.499	0.430	0.243	0.507	0.421	0.175
Observations	195	212	174	195	212	174

• Eq. 7: ${\Delta Syn\left(M\right)}_i={\beta }_0+{\beta }_1{EM}_{Ai}+{\beta }_2{Ln\left(deal\right)}_i+{\beta }_3{PubTarg}_i+{\beta }_4{DEBT}_i+{\beta }_5{CFO}_i+{\beta }_6{STR}_i+{\beta }_7{GDP}_i+{\epsilon }_i$
• Note: The variables are described in Tables 4 and 6.
• VIF = variance inflation factor.
• ¹ Change in performance calculated between the year following the M&A and the year preceding it; ² Change in performance calculated between the second year following the M&A and the year preceding it; ³ Test of the average variance inflation factor (VIF) controlled for sector.
• *** = significant at the 1% level; ** = significant at the 5% level; * = significant at the 10% level.
• Source: Prepared by the authors.

These results are inconsistent with those of previous studies examining EM practices preceding M&As, including the work of Farooqi et al. (2017) , Huang et al. (2019) , and Louis (2004) . However, since this performance is measured by comparing subsequent periods to the period before the M&A for the same firm, it is possible that EM practices were detected by the market and reflected in the indicators used in this article. Therefore, the expected negative relationship was not found.

Generally, the market tends to view the OCF and debt levels of companies involved in M&A transactions positively, which has a positive impact on the MTB and TQ. Nevertheless, Table 4 shows that these metrics were lower after M&A transactions than in the period before the transactions.

In contrast, publicly traded target companies do not significantly affect market performance, possibly due to the small number of such companies in the sample. Similarly, deal size, M&A occurrence within the same industry, and GDP do not significantly affect the market performance of the acquiring firms studied in this article.

5. ADDITIONAL TESTS

To verify whether the results would remain similar when using the absolute values of the AEM and REM proxies, Equations 6 and 7 were re-estimated with this change taken into account. Regarding economic performance, the coefficients related to the absolute values of AEM and REM did not remain similar, nor were they statistically significant. This may have occurred due to the presence of negative AEM and REM proxies, indicating an interest in reducing earnings. Thus, transforming the data to absolute values altered the results. However, it should be noted that this change analyzes the magnitude of EM, not the intention to manage earnings, when analyzing the EM proxies at face value. Regarding market performance, the coefficients related to the absolute values of the AEM and REM proxies remained similar and were not statistically significant.

6. FINAL CONSIDERATIONS

This article examined the relationship between the EM strategies of companies involved in M&As and the economic and market performance of acquiring companies following these deals in Brazil from 2010 to 2021. To achieve this objective, 233 M&A transactions completed by 89 acquiring companies during this period were analyzed.

The results showed that the average economic performance of acquiring firms in the post-M&A period - as measured by ROA, return on equity (ROE), GM, OM, NM, and AT - declined compared to the year before the M&A transactions. Similarly, the average market performance, as measured by MTB and TQ, declined in the year following the deals. The differences in economic and market performance between the year following the M&As and the preceding year were statistically significant, revealing that economic and market synergy gains did not materialize in the year following the M&As.

REM and AEM practices adopted by managers of acquiring companies in the year prior to M&As reduced variables representing economic synergy. These results have practical and academic implications for stakeholders in companies involved in M&As, revealing that the expected synergy gains may not materialize due to managers’ attitudes and interests. This corroborates the concepts of agency theory. From an academic perspective, this finding provides domestic evidence supporting the results presented in an international context, even when considering Brazil’s institutional and market differences relative to other global contexts.

In contrast, market performance was not negatively affected by EM practices despite the decline following the M&As compared to the period prior. One possible interpretation of these results is that capital market participants realized the acquiring companies managed their accounting results and anticipated this development, adjusting these companies’ stock prices. This adjustment affected the market performance metrics studied in this article, so no relationship with the EM proxies was detected. However, this interpretation lacks empirical evidence that could be explored in future research.

It is important to note that a lack of accounting information hinders analysis of acquiring firms’ post-M&A performance over a longer period since expected synergies between firms involved in an M&A may materialize over a period longer than that studied in this article due to potential integration challenges between the firms. Additionally, other performance metrics, such as tax benefits and market share gains, as well as other factors, such as a change in CEO following an M&A, could be examined in future studies.

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This is a bilingual text. This article was originally written in Portuguese and published under the DOI https://doi.org/10.1590/1808-057x20262462.pt

This article is derived from a doctoral dissertation defended by the author Elizio Marcos dos Reis, under the supervision of Wagner Moura Lamounier, in 2025.

DATA AVAILABILITY STATEMENT

The entire dataset supporting the results of this study can be made available upon request to the authors.

GENERATIVE AI DISCLOSURE

The authors declare that generative artificial intelligence was used in the following stages of the production of this manuscript: - Translation: ChatGPT. The authors declare that, regardless of the use of the tools mentioned above, all generated content was supervised, verified, and critically validated by humans. The authors assume full and exclusive responsibility for the accuracy of the data, integrity of mathematical/statistical formulas, originality of the text, and the conclusions presented in the published article.

Email:

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Email:

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Academic Editor-in-Chief:

Andson Braga de Aguiar

Associate Editor:

Sirlei Lemes

CONFLICT OF INTEREST

The authors declare that there is no conflict of interest.

Publication Dates

• Publication in this collection
  28 Sept 2026
• Date of issue
  2026

History

• Received
  06 Sept 2025
• Accepted
  26 Sept 2025
• Accepted
  31 Mar 2026