Earnings Management in Corporate Voting: Evidence from Anti-Takeover Charter Amendments

Chun Keung Hoi
Rochester Institute of Technology

Michael Lacina
Rochester Institute of Technology

Abstract: We use anti-takeover charter amendments to examine managerial influence of the corporate voting process. We find statistically-significant, negative abnormal accruals in the voting year. Serial correlation between the voting year’s accruals and the preceding year’s accruals is negative and significant, despite that other autocorrelations are insignificant. Compared to firms proposing fair price amendments, firms proposing more restrictive amendments have more negative abnormal accruals in the voting year. Since the shareholder vote invariably takes place in the first six months of the voting year, these findings imply that managers of firms proposing anti-takeover charter amendments act opportunistically to inflate earnings by delaying income-decreasing accruals until after shareholders have voted on the amendments.

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