nach oben

Review of Quantitative Finance and Accounting

Erschienen in:

01.11.2009 | Original Research

Effects of takeover protection on earnings overstatements: evidence from restating firms

verfasst von: Yijiang Zhao, Kung H. Chen, Lee J. Yao

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 4/2009

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

A staggered board can substantially protect a firm’s incumbents from takeover in either a hostile acquisition or a proxy contest. We use the existence of a staggered board as enhanced takeover protection and examine the association between staggered boards and earnings manipulation. Following a rigorous procedure to identify a sample of restating firms that overstated earnings, manually collecting data on several governance characteristics and using a matched-pairs methodology, we find that firms with staggered boards are less likely to overstate earnings. One potential interpretation of our results is that staggered boards lessen takeover threats and thus mitigate managers’ pressure to overstate earnings.

Vorheriger Artikel Forecasting time-varying covariance with a range-based dynamic conditional correlation model

Nächster Artikel The effect of earnings quality and country-level institutions on the value relevance of earnings

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Yermack (2006) finds that stock markets respond negatively to the initial disclosure of perquisite consumption by executives, a relatively mild form of managerial self-dealing.

Furthermore, Harford (2003) finds, after a completed takeover bid, that the target firms’ directors hold fewer directorships than before.

We also performed a sensitivity test using a sample consisting of both overstatements and understatements, but failed to find a significant association between staggered boards and the likelihood of financial misstatements (untabulated).

Maddala (1991) suggests that a regular logit regression is appropriate for research designs with unequal sampling rates from case and control groups.

Following Frankel et al. (2002), we measure LitigRisk based on industry-level litigation risk. An alternative approach to measure litigation risk is based on firm-level earnings data (Francis et al. 1994). The main result regarding the association between StagBoard and Overstate remains essentially unchanged (untabulated).

As discussed in Sect. 5, the sample selection procedure controls for firm size by selecting control firms that match each misstatement firm in size.

There is no evidence that the restatements announced during this period differ substantially from those in other periods. Prior studies (e.g., Efendi et al. 2007) also begin with a partial list of the GAO restating firms to form their misstatement samples.

The EITF is an organization formed in 1984 by the Financial Accounting Standards Board (FASB) to identify emerging issues and resolve them with a uniform set of practices before divergent methods become widespread. Several rules issued by the EITF require certain charges (e.g., shipping and handling charges) be removed from both revenues and expenses, though some companies had included such charges in both revenues and expenses. The SAB 101, “Revenue Recognition in Financial Statements,” identifies four criteria that ought to be met before product revenue can be recognized.

The fact that the GAO database cuts off its data of restatement announcements in June 2002 may be one of the reasons for the relatively low number of overstating firms in 2001.

Allison (1990) points out that a value above 2.5 may be a cause for concern for logistic regression.

Agrawal A, Chadha S (2005) Corporate governance and accounting scandals. J Law Econ 48:371–406CrossRef

Allison P (1990) Logistic Regression Using the SAS System, SAS Institute

Altman E (1968) Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. J Finance 23:589–609CrossRef

Beasley M (1996) An empirical analysis of the relation between the board of director composition and financial statement fraud. Account Rev 71:443–465

Bebchuk L, Cohen A (2005) The costs of entrenched boards. J Financ Econ 78:409–433CrossRef

Bebchuk L, Fried J (2004) Pay without performance: the unfulfilled promise of executive compensation. Harvard University Press, Cambridge, Massachusetts and London, England

Begley J, Ming J, Watts S (1996) Bankruptcy classification errors in the 1980 s: an empirical analysis of Altman’s and Ohlson’s Models. Rev Acc Stud 1:267–284CrossRef

Beneish M (1999) Incentives and penalties related to earnings overstatements that violate GAAP. Account Rev 74:425–457CrossRef

Bushee B (1998) The influence of institutional investors on myopic R&D investment behavior. Account Rev 73:305–333

Cheng S, Nagar V, Rajan M (2005) Control versus risk in stock-based incentives: evidence from antitakeover regulation. Rev Financial Stud 18:637–672

Christie A, Zimmerman J (1994) Efficient and opportunistic choices of accounting procedures: corporate control contests. Account Rev 69:539–566

Coates IV J (2000) Takeover defenses in the shadow of the pill: a critique of the scientific evidence. Texas Law Rev 79:271–382

DeAngelo L (1988) Managerial competition, information costs, and corporate governance: the use of accounting performance measures in proxy contests. J Account Econ 10(1):3–36CrossRef

Dechow P, Sloan R, Sweeney A (1996) Causes and consequences of earnings manipulation: an analysis of firms subject to enforcement actions by the SEC. Contemporary Account Res 13:1–36CrossRef

Djankov S, La Porta R, Lopez-de-Silanes F, Shleifer A (2008) The law and economics of self-dealing. J Financ Econ 8:430–465CrossRef

Efendi J, Srivastava A, Swanson E (2007) Why do corporate managers misstate financial statements? The role of option compensation and other factors. J Financ Econ 85:667–708CrossRef

Erickson M, Hanlon M, Maydew E (2006) Is there a link between executive compensation and financial reporting fraud? J Account Res 44:113–143CrossRef

Faleye O (2007) Classified boards, firm value, and managerial entrenchment. J Financ Econ 83:501–529CrossRef

Feroz E, Park K, Pastena V (1991) The financial and market effects of the SEC’s accounting and auditing enforcement releases. J Account Res 29:107–145CrossRef

Francis J, Philbrick D, Schipper K (1994) Shareholder litigation and corporate disclosures. J Account Res 32:137–164CrossRef

Frankel R, Johnson M, Nelson K (2002) The relation between auditors’ fees for non-audit services and earnings management. Account Rev 77:71–105CrossRef

Garvey G, Hanka G (1999) Capital structure and corporate control: the effect of antitakeover statues on firm leverage. J Finance LIV:519–546CrossRef

General Accounting Office (2002) Financial statement restatements: trends, market impacts, regulatory responses, and remaining challenges, Report 03-138. Government Printing Office, Washington, DC

General Accounting Office (2003) Financial statement restatements database, Report 03-395R. Government Printing Office, Washington, DC

Harford J (2003) Takeover bids and target directors’ incentives: the impact of a bid on directors’ wealth and board seats. J Financ Econ 69:51–83CrossRef

Kedia S, Philippon T (2008) The economics of fraudulent accounting. Rev Financial Studies, forthcoming

Klein A (2002) Audit committee, board of director characteristics, and earnings management. J Account Econ 33:375–400CrossRef

Koppes R, Ganske R, Hagg C (1999) Corporate governance out of focus: the debate over classified boards. Bus Lawyer 54:1023–1055

Lipton M, Rosenblum S (2003) Election contests in the company’s proxy: an idea whose time has not come. Bus Lawyer 59:67–94

Lipton M, Rosenblum S, Bebchuk L (2003) The basic pros and cons of shareholder access. In Bebchuk L (eds) Symposium on corporate elections. Harvard Law School, available from the SSRN website

Maddala G (1991) A perspective on the use of limited-dependent and qualitative variables models in accounting research. Account Rev 66:788–807

Manne H (1965) Mergers and the market for corporate control. J Polit Econ 73:110–120CrossRef

Manne H (2002) Bring back the hostile takeover. Wall Street Journal Jan 28, FP11

Maremont M, Weil J (2003) Tyco’s accounting woes may not be over yet. Wall Street Journal Online (May 5, 2003)

Matsumoto D (2002) Management’s incentives to avoid negative earnings surprises. Account Rev 77:483–514CrossRef

McGurn P (2002) Classification cancels corporate accountability. Stanford Law Rev 55:839–844CrossRef

Morck R, Shleifer A, Vishny R (1989) Alternative mechanisms for corporate control. Amer Econ Rev 79:842–852

Myers J, Myers L, Palmrose Z, Scholz S (2004) Mandatory auditor rotation: evidence from restatement. Working paper, University of Illinois at Urbana-Champaign

Ohlson J (1999) On transitory earnings. Rev Acc Stud 4:145–162CrossRef

Palmrose Z, Richardson V, Scholz S (2004) Determinants of market reactions to restatement announcements. J Account Econ 37:59–89CrossRef

Porter E (2004) Executive greed? The other guy started it. New York Times July 4

Scharfstein D (1988) The disciplinary role of takeovers. Rev Econ Stud LV:185–199

Shleifer A, Vishny R (1997) A survey of corporate governance. J Finance LII: 737–783

Stein J (1988) Takeover threats and managerial myopia. J Polit Econ 96:61–80CrossRef

Subramanian G (2004) The disappearing Delaware effect. J Law Econ Org 20:32–59CrossRef

Summers S, Sweeney J (1998) Fraudulently misstated financial statements and insider trading: an empirical analysis. Account Rev 73:131–146

Vafeas N (1999) Board meeting frequency and firm performance. J Financial Econ 52:113–142

Warfield T, Wild J, Wild K (1995) Managerial ownership, accounting choices, and informativeness of earnings. J Account Econ 20:61–92CrossRef

Yermack D (2006) Flights of fancy: corporate jets, CEO perquisites, and inferior shareholder returns. J Financ Econ 80:211–242CrossRef

Zhao Y, Chen K (2008) Staggered boards and earnings management. Account Rev 83:1347–1381CrossRef

Titel: Effects of takeover protection on earnings overstatements: evidence from restating firms
verfasst von: Yijiang Zhao
Kung H. Chen
Lee J. Yao
Publikationsdatum: 01.11.2009
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 4/2009
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-009-0128-9

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 4/2009

Oil prices and transport sector returns: an international analysis

Forecasting time-varying covariance with a range-based dynamic conditional correlation model

Estimating continuous-time stochastic volatility models of the short-term interest rate: a comparison of the generalized method of moments and the Kalman filter

The effect of earnings quality and country-level institutions on the value relevance of earnings