Takeover Threats, Job Security Concerns, and Earnings Management
Public Deposited- Last Modified
- March 19, 2019
- Creator
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Sul, Edward
- Affiliation: Kenan-Flagler Business School
- Abstract
- I exploit the international, staggered adoption of takeover laws in order to examine the effect of increased turnover sensitivity to performance on managers’ financial reporting choices. Using a difference-in-difference design, I find that the enactment of laws designed to promote takeover activity is associated with greater earnings management (abnormally high accruals, small positive earnings, discretionary earnings smoothing and poor accruals quality) and greater opacity (reduced analyst forecast accuracy and following and greater forecast dispersion). This is consistent with managers responding to increased risk of termination by distorting earnings information. As predicted, results are particularly pronounced for managers with the highest ex ante risk of termination and at firms with poor performance. The effects are mitigated in countries in which strong institutions limit the CEOs’ ability to manage earnings and create opacity. Overall, my results suggest that reforms aimed at enhancing governance through higher turnover sensitivity to performance encourage earnings management and opacity by increasing job security concerns.
- Date of publication
- May 2017
- Keyword
- DOI
- Resource type
- Rights statement
- In Copyright
- Advisor
- Lundblad, Christian
- Bushman, Robert
- Labro, Eva
- Landsman, Wayne
- Hendricks, Bradley
- Lang, Mark
- Degree
- Doctor of Philosophy
- Degree granting institution
- University of North Carolina at Chapel Hill Graduate School
- Graduation year
- 2017
- Language
Relations
- Parents:
This work has no parents.
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