NDLI: Takeover Threats, Job Security Concerns, and Earnings Management

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Takeover Threats, Job Security Concerns, and Earnings Management

Content Provider	Scilit
Author	Sul, Edward
Copyright Year	2017
Description	Journal: SSRN Electronic Journal 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, and poor accruals quality) and greater opacity (reduced analyst forecast accuracy 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 facing the greatest risk of termination – those with the highest ex-ante forced turnover probability and at firms with poor performance. The effects are mitigated in countries in which strong institutions can 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.
Related Links	http://cdr.lib.unc.edu/downloads/ks65hd732 https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3034948
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3034948
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2017-09-10
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Earnings Management Sensitivity To Performance Turnover Sensitivity
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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