Owner Managers, Family Business, and Earnings Management Preceding Management Buyouts

This study investigates earnings management prior to management buyouts in a sample of 269 UK private family and non-family firms. It hypothesizes that concentrated ownership in private non-family firms provides sufficient wealth incentives and power to owner/managers to manage earnings upwards before the acquisition, while family owners use management buyouts as a succession tool in the absence of a suitable family successor out of concern for the future of family business. The results are consistent with this prediction. Owner/managers in non-family firms tend to overstate earnings preceding the buyout while family ownership is negatively associated with discretionary accruals one year before the buyout transaction.

Earnings management and performance of management buyouts

Purpose The purpose of this paper is to examine the effect of pre-acquisition earnings management on the performance of private firm management buyouts. Design/methodology/approach The study examines 291 UK private firms acquired by their managers between 2004 and 2012. Earnings management is investigated by means of cross-sectional discretionary accruals models, and estimated discretionary accruals are regressed on performance changes in the three years following acquisition. Findings Management buyouts of private firms are preceded by earnings overstatement and followed by performance deterioration. Private equity sponsored firms engage less in earnings management and remain more profitable than non-sponsored buyouts. Upward earnings managers cease to outperform industry after second post-buyout year, while aggressive earnings managers do not outperform industry at all. Discretionary total accruals are inversely associated with performance changes in the three years after buyout, and explain over 4 per cent of the changes in performance. Research limitations/implications Pertinent to the utilisation of private firms and their exemption from publishing cash flow statement, the study relies on accrual-based models for tests of earnings management. Originality/value The paper contributes to the mergers and acquisitions literature and value creation debate in buyouts by providing the first tests of earnings management and post-acquisition performance in private firm management buyouts.

Temporality and Collaboration in Entrepreneurial Ownership and Finance

This chapter explores the ownership heterogeneity of collaboration in entrepreneurial ventures over time. First, it adopts a temporal perspective to examine two aspects of traditional entrepreneurial start-up activities: the evolution of collaboration in the entrepreneurial team in a particular venture over time and the evolution of collaboration as habitual entrepreneurs develop the portfolio of ventures they own over time. Second, it takes a temporal view to examine the nature of collaboration in entrepreneurial ventures in different environmental contexts, specifically, academic spin-offs, secondary management buyouts/buy-ins, and returnee entrepreneurs. These contexts represent cases where the nature and challenges of collaboration may be quite distinct from that in traditional commercial start-up ventures in developed economies. Third, it examines the temporal dimensions of collaboration in different forms of the financing of entrepreneurial ventures. A final discussion section considers directions for future research.