Wendy Rotenberg

Managerial incentives and the structure of management buyouts

Abstract Management buyouts often occur when incumbent managers have large equity interests in the pre-buyout firms and are typically structured so that managers can increase their share of the outstanding common stock while reducing their dollar investment in the post-buyout firms. We provide a rationale for such observations and develop a model to examine a managers decisions on the structuring of a buyout, and how the structure of a buyout influences a managers efforts in the post-buyout firm.

The Real Effects of Real Earnings Management: Evidence from Innovation

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 in order to alter reported earnings.

Harmonization of foreign currency translation practices: Canadian treatment of long term monetary items

Abstract The harmonization of accounting practices requires that local practices be restricted. An example is the outstanding proposal to change the Canadian accounting treatment of foreign debt. Proposed changes include elimination of the deferral and amortization of translation adjustments; a uniquely Canadian accounting treatment that is now at odds with internationally accepted practices. The likely result will be greater recognition of translation adjustments in current earnings. This study is the first to examine the impact of the proposed changes on the reported leverage and profitability of Canadian companies. The impact is found to be significant.

The Transition to Competitive Pricing on the Toronto Stock Exchange

On April 1, 1983 commission rates on transactions of all sizes became negotiable on the Toronto Stock Exchange (TSE). Under the new competitive pricing arrangement, brokerage firms establish their own rate structures and compete in the marketplace on the basis of price, content and quality of service. This study examines the first two years of transition to negotiated rates. The speed and magnitude of rate reductions, and their distribution across investor categories, indicate the nature and power of the brokerage cartel that is currently being dismantled in Canada.

Working Capital Management, the Credit Crisis, and Hedging Strategies: Canadian Evidence

This study uses a sample of Canadian natural resource firms during the global financial crisis (GFC) of 2007–2008 to examine the influence of firm hedging strategies on their working capital management. Our evidence implies that increased cash holdings and derivatives are alternative ways of hedging risk, and also provides another perspective on the U.S. “trapped cash” controversy as our sample firms are not R&D intensive and do not face the same tax regime as U.S. multinationals.