To address the question as to whether managers manipulate accounting numbers
downwards prior to management buyouts (MBOs), we implement an industry-adjusted
buyout-specific approach and receive an affirmative answer. In UK buyout companies, negative earnings manipulation (understating the earnings prior to the deal) often occurs, both by means of accrual management and real earnings management.
We demonstrate that MBOs are significantly more frequently subject to negative manipulation than leveraged buyouts (LBOs). In non-buyout firms, positive earnings management frequently occurs because it affects managers? bonuses and the likelihood of meeting or beating analysts? expectations which may trigger a positive market reaction. By means of an instrumental variables approach, we examine competing incentives affecting the degree and size of earnings manipulation. Our evidence implies that the (ex ante) perceived likelihood that an MBO will be undertaken has a strong significant effect on negative earnings management, while the external borrowing capacity of the buyout company is not determined by standard capital structure factors, such as earnings numbers. The implementation of the revised UK Corporate Governance Code of 2003 has somewhat reduced the degree of both accrual earnings and real management in MBOs, but since then other manipulation techniques (related to production costs and asset revaluations) are more frequently used, which may be induced by the fact that these manipulation methods are more difficult to detect.
This paper studies CEO re-appointment and succession events in listed family firms with an incumbent family CEO in France, Germany and the UK over 2001-2016. The paper explores whether family firms with a founder CEO are more likely to engage in...Read more
This paper examines the effect of board gender diversity on renewable energy consumption. Using a sample of 11,677 firm-year observations from the USA for 2008–2016, we find a positive relationship between board gender diversity and renewable...Read more
This study provides an economic analysis of the determinants and consequences of corporate social responsibility (CSR) and sustainability reporting. To frame our analysis, we consider a widespread mandatory adoption of CSR reporting standards in...Read more
Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First,...Read more