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Does the monitoring role of buyout houses improve discretionary accruals quality?

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  • Chong Wang

Abstract

Using a sample of reverse leveraged buyout (‘reverse‐LBO’) firms, I find that discretionary accruals quality (AQ), the quality of accruals that are subject to management discretion, significantly improves from pre‐LBO to post‐reverse LBO. Moreover, buyout houses’ board seats and the length of firms’ stay‐in‐private periods are significant explanatory variables for the cross‐sectional variation in discretionary AQ for post‐reverse‐LBO firms. My findings suggest that the monitoring provided by private equity buyout houses improves discretionary AQ, consistent with the view of Jensen (1989a,b) that LBOs are a solution to inefficiencies that arise from agency problems.

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  • Chong Wang, 2010. "Does the monitoring role of buyout houses improve discretionary accruals quality?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(4), pages 993-1012, December.
    • Handle: RePEc:bla:acctfi:v:50:y:2010:i:4:p:993-1012
    DOI: 10.1111/j.1467-629X.2010.00351.x
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    References listed on IDEAS

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    Cited by:

    1. Sarah Osborne & Dean Katselas & Larelle Chapple, 2012. "The preferences of private equity investors in selecting target acquisitions: An international investigation," Australian Journal of Management, Australian School of Business, vol. 37(3), pages 361-389, December.

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