Work detail

Earnings Management Preceding Management Buyouts

Author: Bc. Jakub Bobysud
Year: 2021 - summer
Leaders: Jiří Novák M.Sc., Ph.D., Deloitte Corporate Chair
Work type: Bachelors
Language: English
Pages: 47
Awards and prizes:
Abstract: This thesis examines the quality of accounting information in years preceding
management buyouts (MBOs). In setting of MBOs management has both the capacity
and strong economic incentives to manage earnings or revenues downwards due to
potential capitalization on discount from acquisition values paid. Yet factors deterring
earnings management such as frequent litigation by public shareholders following
MBOs are also in place. The past research on the presence of earnings management
before management buyouts is split which motivates a return to this topic using a new
methodology – discretionary conditional revenue model. This model seems to fare
better at both specificity and sensitivity of earnings management detection as compared
to previous models attempting earnings detection and should provide a valuable insight
into the problem. Moreover, motivation and execution of tests related to potential
impact of undervaluation and operational underperformance of industry peers is
presented in the thesis. The results indicate no evidence of pre-MBO earnings
management as well as insignificant impact of both undervaluation and
underperformance in tests of earnings management.




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