Earnings myopia and private equity takeovers

Paul Hribar, Todd Kravet and Trent Krupa ()
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Paul Hribar: University of Iowa
Todd Kravet: University of Connecticut
Trent Krupa: University of Arkansas

Review of Accounting Studies, 2025, vol. 30, issue 1, No 25, 994-1035

Abstract: Abstract We examine the role of private equity in alleviating earnings myopia induced by public markets. We first construct a measure of earnings myopia and show that this measure varies as predicted with determinants and effects of myopia. Then we show that public firms exhibiting earnings myopia realize an increased likelihood of takeover by private equity buyers. Cross-sectional analyses indicate that this relation is strongest when costs of earnings myopia are likely higher. Following private equity takeovers, firms exhibiting greater measures of earnings myopia realize improvements to R&D investment and productivity. The results add to the understanding of the role of private equity in identifying and alleviating earnings myopia within U.S. capital markets. This is important given the increasing size of private equity assets under management. Takeover premiums paid for myopic firms suggest a cost of earnings myopia at approximately 6.9% of firm value.

Keywords: Private equity; Earnings myopia; Real earnings management; Going private (search for similar items in EconPapers)
JEL-codes: G23 G32 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11142-024-09844-6

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