Earnings management under price regulation: Empirical evidence from the Spanish electricity industry

Noguer, Belén Gill de Albornoz; Illueca, Manuel

doi:10.1016/j.eneco.2004.12.005

Cited by 27 publications

(9 citation statements)

References 30 publications

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“…Since manager's interests do not coincide with those of owners as agents are entrenched in an asymmetric information environment (Jensen and Meckling 1976;Fama and Jensen 1983), managerial incentives to manipulate or distort reported earnings are multifaceted and mainly driven by personal motives, such as compensation and bonuses or stock options, meeting or beating analyst/management forecasts, avoiding the reporting of disappointing losses, bypassing breaching debt covenants, hyping of the share price during initial public offerings (IPOs) or seasonal equity offerings (SEOs), circumvent industry and other regulations. (Healy 1985;Watts and Zimmerman 1986;Defond and Jiambalvo 1994;Teoh et al 1998b;Kasznik 1999;Dutta and Gigler 2002;Abarbanell and Lehavy 2003;Holland and Ramsay 2003;Bartov and Monaharam 2004;Gill-de-Albornoz and Illueca 2005;Iatridis and Kadorinis 2009). The incentives for managers to commit to earnings management also derive from information asymmetry as indicated in the signalling theory that the management team (signaller, insider), who know the real economic performance and the products or services of the company have the opportunity to convey (signal) or not convey this information to investors (receiver, outsider) (Allen and Faulhaber 1989;Akerlof 1970;Spence 1973;Connelly et al 2011).…”

Section: Literature Review and Hypotheses Development Literature Reviewmentioning

confidence: 94%

Exploring the Impact of Internal Corporate Governance on the Relation Between Disclosure Quality and Earnings Management in the UK Listed Companies

Katmon

Farooque²

2015

J Bus Ethics

117

102

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This study investigates the impact of internal corporate governance on the relation between disclosure quality and earnings management in the UK listed companies, in particular whether governance mechanisms have deterrent effect on earnings management similar to firms' disclosure quality. Unlike prior literature, we measure a number of board and audit committee-related governance instruments, three disclosure quality proxies (i.e. Investor Relation Magazine Award, Forward-Looking Disclosure and Analyst Forecast Accuracy) and the Modified Jones Model to test the hypotheses of the study on a matched-pair sample data of Investor Relation Magazine Award winning and non-winning firms. Our findings in the OLS and sensitivity analyses using Heckman Procedure and 2SLS regressions consistently report a significant negative association between earnings management and disclosure quality for all proxies in restraining earnings management. In contrast, corporate governance variables are mostly insignificantly related to earnings management. This provides an emerging trend of the outperformance of disclosure quality over internal governance mechanisms in lessening earnings management. These findings warrant due attention of the policy makers, investors, corporate firms and other stakeholders in shaping a high-quality disclosure and governance regime in corporate settings to mitigate managerial manipulations of earnings across the countries in the world.

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Section: Literature Review and Hypotheses Development Literature Reviewmentioning

confidence: 94%

Exploring the Impact of Internal Corporate Governance on the Relation Between Disclosure Quality and Earnings Management in the UK Listed Companies

Katmon

Farooque²

2015

J Bus Ethics

117

102

View full text Add to dashboard Cite

show abstract

“…7 7 Although income‐increasing manipulation tends to be considered more popular, several downward earnings manipulation incentives have also been identified in the literature. Studies providing evidence of downwards earnings manipulation include Jones (1991), Cahan (1992), Key (1997), Makar and Alam (1998), or Gill‐de‐Albornoz and Illueca (2005). …”

mentioning

confidence: 99%

The Effect of the Board Composition and its Monitoring Committees on Earnings Management: evidence from Spain

Osma

Noguer

2007

Corporate Governance

158

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We test whether corporate governance mechanisms promoted by best practice codes are effective in constraining earnings manipulation for a Spanish sample of quoted companies during the period 1999-2001. In particular, we analyse the association between earnings management and two key aspects of corporate governance: board composition and the existence of board monitoring committees. Our results show that board composition significantly determines earnings manipulation practices. However, the main role in constraining such practices is not played by independent directors, as UK and US based research suggests, but by institutional directors. No correlation is found between the existence of an independent audit committee and earnings management measures. Finally, the existence and composition of a nomination committee affects the role of independent directors in constraining earnings manipulation. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

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“…Nevertheless, Mak & Li (2001) argued that GLCs may have less motivation to manage agency issues because they have less responsibility for financial results, easier access to funding, less market visibility for corporate management, and weaker shareholder monitoring. Also, opportunistic actions can occur in companies with a high percentage of government shares due to political pressure (Gill-de-Albornoz & Illueca, 2005). This study provides rational explanations why the government generally fulfils its function as an internal supervisory structure in which the involvement of government control is supposed to help improve the monitoring process of the organisation.…”

Section: Moderating Effects Of Government Ownershipmentioning

confidence: 85%

The Moderating Effect of Government Ownership on the Relationship between Cash Flow and Firm’s Performance for Construction Industry in Malaysia

Aris¹,

Sokat²,

Salawati³

2020

IJARAFMS

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This study attempts to measure the circumference of the cash utilization activities from operations activity, investment activity, and financing activity towards firms' performance of the construction industry in Malaysia by using Government Ownership as the moderating variable. This study essentially using a secondary data that obtain from the annual report for the year 2014 to 2018. The data of the cash flow variable and firms' performance was originally keep recorded in a monetary value whilst data for Government Ownership was obtained through a content analysis. The findings revealed that there is negative relationship with Net Cash Flow towards the Return on Assets. The results demonstrated that the Net Cash Flow in Operating activity is the most influenced by Government Ownership. The Net Cash Flow in Investing activity is significantly affected, while the Net Cash Flow in Financing is the least affected by Government Ownership. In other words, although the government has an authority to influence the economic activity in the market, the government interfere in their capital structure does not effectively affect the firms' performance of construction sector in Malaysia.

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Earnings management under price regulation: Empirical evidence from the Spanish electricity industry

Cited by 27 publications

References 30 publications

Exploring the Impact of Internal Corporate Governance on the Relation Between Disclosure Quality and Earnings Management in the UK Listed Companies

Exploring the Impact of Internal Corporate Governance on the Relation Between Disclosure Quality and Earnings Management in the UK Listed Companies

The Effect of the Board Composition and its Monitoring Committees on Earnings Management: evidence from Spain

The Moderating Effect of Government Ownership on the Relationship between Cash Flow and Firm’s Performance for Construction Industry in Malaysia

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