Financial Reporting and Conflicting Managerial Incentives: The Case of Management Buyouts

Paul E. Fischer () and Henock Louis ()
Additional contact information
Paul E. Fischer: Accounting Department, Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802
Henock Louis: Accounting Department, Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802

Management Science, 2008, vol. 54, issue 10, 1700-1714

Abstract: We analyze the effect of external financing concerns on managers' financial reporting behavior prior to management buyouts (MBOs). Prior studies hypothesize that managers intending to undertake an MBO have an incentive to manage earnings downward to reduce the purchase price. We hypothesize that managers also face a conflicting reporting incentive associated with their efforts to obtain external financing for the MBO and to lower their financing cost. Consistent with our hypothesis, we find that managers who rely the most on external funds to finance their MBOs tend to report less negative abnormal accrual prior to the MBOs. In addition, the relation between external financing and abnormal accruals is tempered when there are more fixed assets that can serve as collateral for debt financing.

Keywords: MBO; earnings management; debt financing; managerial incentives (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1080.0895 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:54:y:2008:i:10:p:1700-1714

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().