There are frequent expressions of concern in the accounting, economics
, and legal literature about managers' conflicting duties and incentiv
es in management buyouts. This study is motivated by a concern about t
he managerial incentive to reduce reported earnings prior to the annou
ncement of the buyout proposal. Our analysis of a sample of 175 manage
ment buyouts during 1981-88 provides evidence of manipulation of discr
etionary accruals in the predicted direction in the year preceding the
public announcement of management's intention to bid for control of t
he company.