EARNINGS MANAGEMENT PRECEDING MANAGEMENT BUYOUT OFFERS

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.