Review of Accounting Studies

, Volume 14, Issue 4, pp 507–533 | Cite as

Managerial incentives for discretionary disclosure: evidence from management leveraged buyouts

  • Nader M. HafzallaEmail author


Managers in management leveraged buyout (MBO) firms prefer to purchase their firms at a low offer price. This motive gives them a clear incentive to make pessimistic discretionary disclosures. Using a sample of press releases, I find that managers involved in their firms’ MBO selectively release negative disclosures to denigrate their firm just before the MBO transaction when compared with prior period: they issue more bad news disclosures and more pessimistic quotes. Additionally, they issue less optimistic quotes, fewer good news disclosures, less positive earnings forecasts, and they manage earnings downwards. I control for factors that may not be caused by managers’ purchase motives by comparing the MBO sample with a third-party leveraged buyout sample where management is not involved in the buyout and with a performance-matched control sample. I find that the disclosure of MBO firms becomes significantly more pessimistic than the leveraged buyout firms where management is not involved in the transaction and significantly more pessimistic than the performance-matched control sample.


Leveraged buyout Management buyout Disclosure 

JEL Classifications

G24 M41 


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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Ross School of BusinessUniversity of MichiganAnn ArborUSA

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