Earnings Myopia and Private Equity Takeovers

53 Pages Posted: 10 Sep 2021 Last revised: 13 Sep 2021

See all articles by Paul Hribar

Paul Hribar

University of Iowa - Department of Accounting; University of Iowa - Henry B. Tippie College of Business

Todd D. Kravet

University of Connecticut - Department of Accounting

Trent Krupa

University of Connecticut - Department of Accounting

Date Written: September 8, 2021

Abstract

We examine whether earnings myopia among publicly traded companies motivates private equity firms to acquire them. Using a sample of private equity takeovers, we show that multiple measures of myopia increase the likelihood of takeover by private equity buyers. In contrast, private takeovers motivated for strategic reasons do not have a similar association with myopia measures, nor do takeovers by public firms. We further show that post-takeover, firms exhibit significantly less earnings myopia, including increased investment in R&D. Our results suggest that the cost of earnings myopia can be sufficiently large to warrant a takeover by private equity and contributes to the shrinking number of publicly traded firms.

Keywords: myopia, real earnings management, private equity takeover, going private

Suggested Citation

Hribar, Paul and Kravet, Todd D. and Krupa, Trent, Earnings Myopia and Private Equity Takeovers (September 8, 2021). Available at SSRN: https://ssrn.com/abstract=3919634 or http://dx.doi.org/10.2139/ssrn.3919634

Paul Hribar

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

Todd D. Kravet (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Trent Krupa

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

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