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Boards, takeover protection, and real earnings management

Review of quantitative finance and accounting, 2014-11, Vol.43 (4), p.651-682 [Peer Reviewed Journal]

Springer Science+Business Media New York 2013 ;Springer Science+Business Media New York 2014 ;ISSN: 0924-865X ;EISSN: 1573-7179 ;DOI: 10.1007/s11156-013-0388-2

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Title:
Boards, takeover protection, and real earnings management
Author: Ge, Wenxia ; Kim, Jeong-Bon
Subjects: Accounting/Auditing ; Anti takeover strategy ; Board of directors ; Boards of directors ; Corporate Finance ; Corporate governance ; Earnings ; Earnings management ; Econometrics ; Economic analysis ; Economic incentives ; Economics and Finance ; Finance ; Institutional investments ; Operations Research/Decision Theory ; Original Research ; R&D ; Research & development ; Research & development expenditures ; Revenue management ; Sales ; Studies ; U.S.A
Is Part Of: Review of quantitative finance and accounting, 2014-11, Vol.43 (4), p.651-682
Description: We investigate the effect of board governance and takeover protection on real earnings management. Four types of real earnings management are considered: sales manipulation, overproduction, the abnormal reduction of research and development (R&D) expenses, and the abnormal reduction of other discretionary expenditures. Using panel data from US public firms in the post-Sarbanes–Oxley Act period, we find that the level of real earnings management (sales manipulation, abnormal declines in R&D expenses, and other discretionary expenses) increases with better board governance and decreases with higher takeover protection. These two governance factors generally have no significant effect on overproduction. We further find that firms substitute accrual-based earnings management with sales manipulation and abnormal cuts in discretionary expenses, and the substitution effect is more pronounced in firms with stronger board governance. Overall, our findings indicate that the level of real earnings management is higher when a firm is faced with tough board monitoring, and that takeover protection may reduce managerial incentives for real earnings management.
Publisher: Boston: Springer US
Language: English
Identifier: ISSN: 0924-865X
EISSN: 1573-7179
DOI: 10.1007/s11156-013-0388-2
Source: Alma/SFX Local Collection
ProQuest Central

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Boards, takeover protection, and real earnings management

Springer Science+Business Media New York 2013 ;Springer Science+Business Media New York 2014 ;ISSN: 0924-865X ;EISSN: 1573-7179 ;DOI: 10.1007/s11156-013-0388-2

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