An Empirical Analysis of Corporate Takeover Defenses and Earnings Management: Evidence from the U.S.

32 Pages Posted: 7 Oct 2009

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Multiple version iconThere are 2 versions of this paper

Date Written: July 22, 2004

Abstract

This study explores the impact of corporate takeover defenses on the extent of earnings management in the U.S. Theoretically, it is not obvious whether takeover defenses alleviate or exacerbate earnings management. I examine four well-known corporate takeover defenses; blank check preferred stock, poison pills, classified boards, and dual class stock. In spite of their similarity as takeover defenses, the empirical evidence indicates that they do not influence the degree of earnings management in the same way. Specifically, blank check preferred stock does not have a significant impact on earnings management. Poison pills and classified boards are found to reduce earnings management, on average, by 1.9% and 1.5% respectively. On the contrary, dual class stock exacerbates earnings management by increasing the degree of abnormal accruals by 2.6% on average. The results are robust even after controlling for firm size, profitability, financial distress, growth opportunities, and information asymmetry.

Keywords: earnings management, takeover defenses

JEL Classification: G30, G34

Suggested Citation

Jiraporn, Pornsit, An Empirical Analysis of Corporate Takeover Defenses and Earnings Management: Evidence from the U.S. (July 22, 2004). Available at SSRN: https://ssrn.com/abstract=1483787 or http://dx.doi.org/10.2139/ssrn.1483787

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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