Earnings management and internal mechanisms of corporate governance: Empirical evidence from Chilean firms

López‐Iturriaga, Félix J.; Saona, Paolo

doi:10.22495/cocv3i1p2

Cited by 43 publications

(27 citation statements)

References 76 publications

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“…In other words, the effective monitoring of large shareholders and reduced information asymmetry is expected to reduce the opportunistic behaviour of the managers and hence limit the earnings management. This is supported by previous studies, viz and Iturriaga and Hoffmann (2005). On the other hand, as the ownership becomes more concentrated, it may cause divergence of interest between large and small shareholders.…”

Section: Ownership Structures and Earnings Managementsupporting

confidence: 83%

Earnings Management and Ownership Structure: Evidence from Sri Lanka

Anwar

Buvanendra

2019

Colombo Bus. J

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The main purpose of this study is to examine the impact of ownership structure on earnings management considering listed firms at the Colombo Stock Exchange-Sri Lanka during the period of 2013/14 to 2017/18. Earnings management is measured using discretionary accruals as a proxy based on Kothari, Leone and Wesley (2005) performance adjusted discretionary accrual model, while taking into account the four types of ownership structures, viz, ownership concentration, managerial ownership, institutional ownership and foreign ownership. The study employed pooled OLS regression. The findings of the study reveal that managerial and institutional ownership structures are effective in constraining accruals manipulations. Conversely, foreign ownership is found to have a significantly positive association with earnings management. The outcomes of the paper further widen the literature related to understanding the influences of ownership structure on earnings management in the context of emerging economies.

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Section: Ownership Structures and Earnings Managementsupporting

confidence: 83%

Earnings Management and Ownership Structure: Evidence from Sri Lanka

Anwar

Buvanendra

2019

Colombo Bus. J

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“…Therefore, executives increase their prudency to invest in non-value maximizing projects. Further, high-leverage firms show lenders' scrutiny and control, which could mitigate REM practices [16,28]. Equally, Januarsi et al [29] mention that managers might be reluctant to offer discounts, cut discretionary spending, or reduce the production cost, as these efforts will be valuable only in the short term, contrary to the negative effect on future cash flows in the long-term.…”

Section: Development Of Hypothesesmentioning

confidence: 99%

“…On the one hand, the positive relationship between debt and REM is grounded in the high default risk of the high-leverage companies, suggesting that firms might increase their real manipulation activities (1) to secure debt refinancing [2,10], (2) to prevent penalties arising from contraventions of debt covenants [11,12], and (3) to show stable and less volatile earnings to increase the confidence of future investors [13,14]. On the other hand, there is a negative association between leverage and REM, as lenders and institutional investors impose spending conditions and increase their scrutiny and control in firms, which reduce managers' opportunistic behavior and mitigate REM practices [15,16]. Furthermore, in the presence of low free cash flow caused by the engagement of REM practices, managers prioritize their debt payments and repayment and increase their prudency to invest in non-value maximizing projects, which reduce firms' leverage [17].…”

Section: Introductionmentioning

confidence: 99%

Effect of Leverage on Real Earnings Management: Evidence from Korea

Tulcanaza-Prieto¹,

Lee²,

Koo³

2020

Sustainability

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This study examines how leverage affects real earnings management (REM) in non-financial firms listed on the Korea Composite Stock Price Index from 2010 to 2018 by employing total, short-term, and long-term debt ratios (i.e., leverage) as independent variables and four REM metrics as dependent variables. We find a significant positive relationship between leverage and REM in suspicious firms, whereas the effect of leverage is insignificant in non-suspicious firms. We also find that the positive relationship between both variables is stronger in the second half of the fiscal year, which shows the prevalence of the seasonality of REM, as managers collect high-frequency financial information during this period. These findings are consistent with those in the literature that managers increase firm leverage and REM activities to reduce their probability of being discovered, since financial statements in the interim quarters are not often audited. Our study complements the literature by introducing quarterly data to identify clearly REM activities and detect the strongest effect on the relationship between REM and leverage. Moreover, our results from the two-stage least square (2SLS) regression analysis are consistent with our previous findings.

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“…Most authors use the largest shareholder as a proxy of ownership concentration (e.g., Davidson et al, 2005;Ding, Zhang, & Zhang, 2007). Others also consider the percentage of total shares held by the top 20 shareholders (Bugshan, 2005); the five largest shareholders (López Iturriaga & Saona Hoffman, 2005); or ownership from the second to the tenth shareholder (Liu & Lu, 2007). Since the results on the effect of ownership concentration on earnings management are heterogeneous, it is fruitful to test whether there are differential effects across different measures of ownership concentration.…”

Section: H4: the Measure Of Insider Ownership (Managerial Versus Boarmentioning

confidence: 99%

Corporate Governance and Earnings Management: A Meta‐Analysis

García‐Meca

Sánchez‐Ballesta

2009

Corporate Governance

260

165

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Manuscript Type: ReviewResearch Question/Issue: The goal of this paper is to meta-analyze the results of 35 studies that examine the effect on earnings management of firms' boards of directors and ownership structure. We examine whether differences in results are attributable to moderating effects related to the system of corporate governance, the measurement of the governance variable, or the particular specifications of discretionary accruals models. Research Findings/Insights: The findings show that the variation in the results of previous studies on CEO duality and audit committee independence are caused by sampling error. In addition, the measurement of dependent variable, discretionary accruals, and the corporate governance system moderate the association between earnings management and some corporate governance variables. Theoretical/Academic Implications: The measurement of variables, especially discretionary accruals, influences the findings found in previous studies. The findings emphasize the need to explicitly consider the legal and institutional setting when one analyzes the effect of mechanisms of corporate governance on discretionary accruals. Future research should include matrix correlations, and consider detailed measures of earnings management and more attributes of boards of directors in order to facilitate research using meta-analysis. Practitioner/Policy Implications: The results suggest that board independence, board size, and audit committee independence can improve investor confidence by constraining earnings management. Additional empirical evidence regarding refined measures of ownership and board, specifically board independence, would be very useful in gaining greater understanding of how the different approaches to these constructs influence earnings management.

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Earnings management and internal mechanisms of corporate governance: Empirical evidence from Chilean firms

Cited by 43 publications

References 76 publications

Earnings Management and Ownership Structure: Evidence from Sri Lanka

Earnings Management and Ownership Structure: Evidence from Sri Lanka

Effect of Leverage on Real Earnings Management: Evidence from Korea

Corporate Governance and Earnings Management: A Meta‐Analysis

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