Review of Quantitative Finance and Accounting

, Volume 33, Issue 4, pp 347–369

Effects of takeover protection on earnings overstatements: evidence from restating firms

Original Research

DOI: 10.1007/s11156-009-0128-9

Cite this article as:
Zhao, Y., Chen, K.H. & Yao, L.J. Rev Quant Finan Acc (2009) 33: 347. doi:10.1007/s11156-009-0128-9

Abstract

A staggered board can substantially protect a firm’s incumbents from takeover in either a hostile acquisition or a proxy contest. We use the existence of a staggered board as enhanced takeover protection and examine the association between staggered boards and earnings manipulation. Following a rigorous procedure to identify a sample of restating firms that overstated earnings, manually collecting data on several governance characteristics and using a matched-pairs methodology, we find that firms with staggered boards are less likely to overstate earnings. One potential interpretation of our results is that staggered boards lessen takeover threats and thus mitigate managers’ pressure to overstate earnings.

Keywords

Takeover protectionStaggered boardsFinancial statement restatementsEarnings overstatements

JEL Classification

M41G34G38

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.School of ManagementUniversity of Alaska FairbanksFairbanksUSA
  2. 2.School of AccountancyUniversity of Nebraska-LincolnLincolnUSA
  3. 3.The J.A. Butt College of BusinessLoyola University New OrleansNew OrleansUSA