[In contrast to previous literature, we argue that there are two types of poorly performing firms going private through a leveraged buyout (LBO). One group consists of firms in which managers own an insignificant fraction of their firm's stock and are vulnerable to a hostile takeover. The other group consists of firms in which managers own a significant fraction of their firm's stock and so face little risk of hostile takeover. Our evidence indicates that there are two such groups of LBOs and that their motivations and posttransaction actions are different.]

In contrast to previous literature, we argue that are two types of poorly performing firms going private through a leveraged buyout (LBO). One group consists of firms in which managers own an insignificant fraction of their firm's stock and are vulnerable to a hostile takeover. The other group consists of firms in which managers own a significant fraction of their firm's stock and so face little risk of hostile takeover. Our evidence indicates that there are two such groups of LBOs and that their motivations and posttransaction actions are different.

Abstract We examine the consequences of real earnings management from an innovation perspective and investigate the patent output of firms likely to be managing earnings through altering their R&D expenditures. We find that R&D cuts related to earnings management lead to fewer patents, less influential patent output, and lower innovative efficiency compared to other R&D cuts. Our results thus suggest that real earnings management may obstruct firms’ technological progress and highlight the potential costs of managerial manipulation of R&D expenditures to alter reported earnings.