Financial Reporting and Conflicting Managerial Incentives: The Case of Management Buyouts

We analyze the effect of external financing concerns on managers\u27 financial reporting behavior prior to management buyouts (MBOs). Prior studies hypothesize that managers intending to undertake an MBO have an incentive to manage earnings downward to reduce the purchase price. We hypothesize that managers also face a conflicting reporting incentive associated with their efforts to obtain external financing for the MBO and to lower their financing cost. Consistent with our hypothesis, we find that managers who rely the most on external funds to finance their MBOs tend to report less negative abnormal accrual prior to the MBOs. In addition, the relation between external financing and abnormal accruals is tempered when there are more fixed assets that can serve as collateral for debt financing

Insider Trading after Repurchase Tender Offer Announcements: Timing versus Informed Trading

Abnormally high net insider selling is commonly observed after repurchase tender offer (RTO) announcements although, on average, firms experience positive abnormal returns in the years after the repurchases. We explore two potential explanations: liquidity trade timing and informed trading. Consistent with the notion that fixed price RTOs are more likely than Dutch-auction RTOs to signal undervaluation, the results suggest that insider selling after fixed price RTO announcements are driven largely by insiders who time their trades with the repurchase announcements. In contrast, selling after Dutch-auction RTOs seems to be driven primarily by informed traders who exploit mispricing associated with the repurchase announcements.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/79151/1/j.1755-053X.2010.01074.x.pd

ESG Activities & Reporting

HENOCK LOUIS is the KPMG Professor and the Head of the Accounting Department at Penn State University. His work is published in the top accounting and finance journals. He has conducted seminars at a host of major universities worldwide and received the 2005 Excellence in Research Award from the American Accounting Association Diversity Section. He is an editor for the Accounting Horizons and has served on the editorial boards of the Accounting Review and the Contemporary Accounting Research. Professor Louis holds a Ph.D. in Accounting from Ohio State University; a Ph.D. in Finance and a master’s in Accounting from the University of Mississippi; an MBA from Andrews University; and BAs in Theology and Business from the Adventist University of Haiti

The Cost of Using Bank Mergers as Defensive Mechanisms against Takeover Threats

This study shows that targeted banks that become acquirers generally overpay. The evidence suggests that bank mergers are effective devices against takeovers. Targeted banks that engage in acquisitions are less likely to be taken over than are targeted banks that do not engage in acquisitions. However, such a strategy is costly. I find that market reactions to bank mergers involving recently targeted acquirers are significantly more negative than market reactions to mergers involving nontargeted acquirers. This is consistent with the market perceiving acquisitions by targeted banks as being generally defensive in nature.

Investor Inattention and the Market Reaction to Merger Announcements

Prior studies suggest that investors have limited attention. Tests of the inattention hypothesis have been performed in the context of relatively small corporate events, particularly earnings announcements. Presumably, large corporate events would always attract sufficient investor attention. However, we find evidence indicating that inattention affects investors' information processing even in the context of one of the largest and most important corporate events--merger announcements. More specifically, consistent with the notion that investors are less attentive to Friday announcements, we find that the market reaction to Friday stock swap announcements is muted, as evidenced by lower acquirers' merger announcement abnormal trading volumes and less pronounced acquirers' merger announcement abnormal stock returns.investor inattention, merger announcements, market efficiency