Journal of Accounting and Finance

Oct 13, 2025 by magicalceylontours.com 32 views

Introduction

The acquisition of companies is a common practice in the business world, and it can have a significant impact on the financial performance of the acquirer company. However, the process of acquisition can also be influenced by earnings management actions, which can affect the financial performance of the acquired company. This study aims to analyze the profit management and financial performance of companies listed on the Indonesia Stock Exchange (IDX) before and after the acquisition process.

Background

The acquisition of companies is a strategic move that can help companies to expand their market share, increase their revenue, and improve their financial performance. However, the process of acquisition can also be influenced by earnings management actions, which can affect the financial performance of the acquired company. Earnings management is the practice of manipulating financial reports to achieve a specific goal, such as increasing profits or reducing losses.

Research Questions

This study aims to answer the following research questions:

Is there evidence of earnings management actions carried out by the acquirer company before making an acquisition?
Are there differences in the financial performance of the acquired company before and after the acquisition process?

Methodology

This study uses a quantitative approach to analyze the financial performance of companies listed on the IDX. The sample selection criteria include companies that are not engaged in the banking sector or financial institutions, as well as those who acquire in the 2011-2012 period. The company under study must have financial reports available for three years before and three years after the acquisition, and the acquisition date must be clearly recorded.

Data Analysis

The data analysis in this study includes the calculation of discretionary accruals (DA) to measure profit management, and the use of various financial ratios, including net profit margin (NPM), Return on Assets (ROA), Debt to Equity Ratio (DER), Total Assets Turnover (TATO), and current ratio (CR) to measure financial performance.

Results

The results of this study show that there was no evidence that supported the occurrence of earnings management actions, especially the Income Income Accruals method, before the acquisition was carried out. On the other hand, analysis of financial performance reveals that NPM, ROA, and tattoos variables do not show significant differences before and after acquisition. Conversely, DER and CR variables show significant differences in company performance before and after the acquisition process.

Financial Performance Analysis

Debt to Equity Ratio (DER)

The Debt to Equity Ratio (DER) reflects the proportion of debt to the company's equity. When companies make acquisitions, they may have to increase debt to finance the process, so that DER can increase significantly. This can be an indication that companies are more aggressive in finding growth through acquisitions.

Current Ratio (CR)

The Current Ratio (CR) measures company liquidity, namely the company's ability to meet short-term obligations. Increased CR after acquisition can reflect improvements in the company's short-term asset and liabilities management. However, if the acquisition is not managed properly, this can also be a signal of problems in company liquidity, which needs to be considered by investors and stakeholders.

Conclusion

In conclusion, this research provides valuable insights on earnings management and financial performance of acquirers in Indonesia. Although no earnings management actions were found before the acquisition, a significant difference in DER and CR showed that the acquisition had a significant impact on the company's financial structure. This is important for investors to consider these aspects before making investment decisions.

Recommendations

As a further step, it is recommended for researchers to expand the scope of analysis by considering external factors that can affect financial performance, as well as study the long-term impact of the acquisition of the acquirer company in Indonesia.

Limitations

This study has several limitations, including the use of a small sample size and the reliance on secondary data. Future studies can address these limitations by using a larger sample size and collecting primary data.

Future Research Directions

Future research can explore the following directions:

External factors: Investigate the impact of external factors, such as economic conditions, industry trends, and regulatory changes, on the financial performance of acquirers.
Long-term impact: Study the long-term impact of acquisitions on the financial performance of acquirers.
Acquisition strategies: Examine the different acquisition strategies used by companies and their impact on financial performance.

By addressing these research directions, future studies can provide a more comprehensive understanding of the acquisition process and its impact on financial performance.

References

[1] Accounting Standards Board (ASB). (2019). Accounting Standards for Business Entities.
[2] Financial Accounting Standards Board (FASB). (2018). Accounting Standards Codification (ASC).
[3] Indonesia Stock Exchange (IDX). (2020). Annual Report.
[4] Journal of Accounting and Finance. (2020). Vol. 20, No. 1.
[5] Journal of Business and Economics. (2020). Vol. 20, No. 2.

Note: The references provided are fictional and for demonstration purposes only.

Q: What is the purpose of this study?

A: The purpose of this study is to analyze the profit management and financial performance of companies listed on the Indonesia Stock Exchange (IDX) before and after the acquisition process.

Q: What is earnings management?

A: Earnings management is the practice of manipulating financial reports to achieve a specific goal, such as increasing profits or reducing losses.

Q: What is the sample selection criteria for this study?

A: The sample selection criteria for this study include companies that are not engaged in the banking sector or financial institutions, as well as those who acquire in the 2011-2012 period. The company under study must have financial reports available for three years before and three years after the acquisition, and the acquisition date must be clearly recorded.

Q: What are the methods used to measure profit management and financial performance?

A: The methods used to measure profit management are discretionary accruals (DA), while the methods used to measure financial performance are various financial ratios, including net profit margin (NPM), Return on Assets (ROA), Debt to Equity Ratio (DER), Total Assets Turnover (TATO), and current ratio (CR).

Q: What are the results of this study?

A: The results of this study show that there was no evidence that supported the occurrence of earnings management actions, especially the Income Income Accruals method, before the acquisition was carried out. On the other hand, analysis of financial performance reveals that NPM, ROA, and tattoos variables do not show significant differences before and after acquisition. Conversely, DER and CR variables show significant differences in company performance before and after the acquisition process.

Q: What are the implications of this study?

A: The implications of this study are that investors and stakeholders should consider the financial structure of the acquirer company before making investment decisions. Additionally, the study highlights the importance of proper management of short-term assets and liabilities after an acquisition.

Q: What are the limitations of this study?

A: The limitations of this study include the use of a small sample size and the reliance on secondary data. Future studies can address these limitations by using a larger sample size and collecting primary data.

Q: What are the future research directions?

A: Future research can explore the following directions:

External factors: Investigate the impact of external factors, such as economic conditions, industry trends, and regulatory changes, on the financial performance of acquirers.
Long-term impact: Study the long-term impact of acquisitions on the financial performance of acquirers.
Acquisition strategies: Examine the different acquisition strategies used by companies and their impact on financial performance.

Q: What are the practical implications of this study?

A: The practical implications of this study are that companies should consider the financial structure of the acquirer company before making an acquisition. Additionally, companies should properly manage short-term assets and liabilities after an acquisition to avoid problems in company liquidity.

Q: What are the theoretical implications of this study?

A: The theoretical implications of this study are that it contributes to the existing literature on earnings management and financial performance of acquirers. The study also highlights the importance of considering the financial structure of the acquirer company before making an acquisition.

Q: What are the future research opportunities?

A: Future research opportunities include:

Case studies: Conduct case studies of companies that have made acquisitions to gain a deeper understanding of the acquisition process and its impact on financial performance.
Survey research: Conduct survey research to gather data from companies that have made acquisitions and to gain a better understanding of the factors that influence the acquisition process.
Experimental research: Conduct experimental research to test the impact of different acquisition strategies on financial performance.

Note: The questions and answers provided are fictional and for demonstration purposes only.