GEX Management Inc (GXXM)

[StockRoomBully]

Simple armour. This happens often in mbo buyout. Read source.

"Do Managers Manipulate
Earnings Prior to Management
Buyouts
This paper can be downloaded without charge from:
http://ssrn.com/abstract_id=2330784


www.ecgi.org/wp

Whereas the manipulation of financial statements prior to US MBOs has occasionally been
detected in the academic literature over the past 20 years, we wonder whether accounting
manipulation has occurred/still occurs in the second most important buyout market,

We investigate two types of incentives for accounting
manipulation in an LBO/MBO context. On one hand, managers may opt to present lower
earnings if they are likely to participate in a prospective buyout transaction and will
subsequently stay with the company. Negative earnings manipulation or earnings
understatement is induced by the management engagement incentives. On the other hand,
managers’ incentive to misrepresent the earnings may be related to the financing of the future
transaction. A typical LBO is traditionally financed with 60 to 90 percent debt (Kaplan and
Strömberg, 2009) – although this ratio has decreased to 50-60 percent since the recent
financial crises. Low earnings (cash flow) numbers would reduce the amount of debt that a
firm could bear at the relevering stage. Thus, managers who prepare a corporate sale by
means of an LBO could manipulate earnings upwards in order to facilitate the buyout
transaction – this is the external financing incentive. We distinguish here between MBOs
whereby the pre-transaction management remains (financially) involved in the company
subsequent to the transaction, and LBOs which we define as transactions without