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
News 
Market Data 
Discover 
AI
