Managerial entrenchment and earnings managementDi Meo, F., García Lara, J. M. & Surroca, J., 2017, In : Journal of Accounting and Public Policy. 36, 5, p. 399-414 16 p.
Research output: Contribution to journal › Article › Academic › peer-review
Agency theorists have long contended that managerial entrenchment is detrimental for shareholders, because it protects managers from the discipline of corporate governance. However, as a competing hypothesis, we argue that entrenchment can also provide benefits for the firm's owners: it leads managers to be less myopic in managing earnings to meet short-term financial reporting goals. Our findings are consistent with this prediction as they suggest that, when there are incentives to manipulate firms' performance, entrenched managers are less prone to engage in earnings management activities that hurt shareholders. Specifically, we focus on firms that just meet or marginally beat earnings benchmarks and document a negative association between managerial entrenchment and both the opportunistic use of accruals and the manipulation of real activities. We also show that earnings management is less detrimental to firm value if the manager is entrenched. Finally, we find that these effects of entrenchment on earnings management are only present for firms domiciled in Delaware.
|Number of pages||16|
|Journal||Journal of Accounting and Public Policy|
|Publication status||Published - 2017|
- Managerial entrenchment, Earnings management, REAL ACTIVITIES MANIPULATION, CORPORATE GOVERNANCE, FIRM VALUE, DISCRETIONARY ACCRUALS, TAKEOVER PROTECTION, OWNERSHIP STRUCTURE, PRIVATE INFORMATION, PERFORMANCE, MARKET, EXPECTATIONS