Ownership concentration, separation of voting rights from cash flow rights, and earnings management: an empirical study in Canada

Abstract

Drawing from models of Jones (1991) and Kothari, Leone, and Wasley (2005), this study examines the relationship between Canadian corporate ownership structure and earnings management from 1995 to 1999. There is evidence of a nonmonotonic relationship. The concentration of voting and cash flow rights with the ultimate owner first increases earnings management, but as the level of ownership concentration increases, earnings management decreases. There is also a positive correlation between earnings management and voting and cash flow rights divergence. This is particularly evident when the gap between voting and cash flow rights is high. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.

Dual–class ownership structure and audit fees

“…The provincial securities commissions in Canada are usually dominated by members of the profession who are much less activist than the U.S. Securities and Exchange Commission. 7 Bozec (2008) documents a positive association between earnings management (measured by abnormal accruals) and voting and cash flow rights divergence for a sample of dual-class firms in Canada. Overall, these differences imply a less-litigious legal environment in Canada compared to the United States.…”

“…5 In particular, the differences in regulatory and legal environments between two countries can potentially affect the demand/supply for audit services and the audit fee-setting process. 6 Furthermore, Bozec (2008) shows that earnings quality is lower in dual-class firms in Canada, which can also be due to the less-litigious legal environment in which controlling managers are more likely to manage earnings and to extract private benefits at the expense of the minority shareholders without much fear of facing severe penalties (such as class-action lawsuits). 6 Furthermore, Bozec (2008) shows that earnings quality is lower in dual-class firms in Canada, which can also be due to the less-litigious legal environment in which controlling managers are more likely to manage earnings and to extract private benefits at the expense of the minority shareholders without much fear of facing severe penalties (such as class-action lawsuits).…”

Understanding the Determinants of RiskMetrics/ISS Ratings of the Quality of UK Companies' Corporate Governance Practice

“…Prior research also shows that ownership concentration is positively associated with earnings management (Bozec, 2008). Prior research also shows that ownership concentration is positively associated with earnings management (Bozec, 2008).…”

Gerenciamento De Resultados E Estrutura De Propriedade: Evidências No Brasil

“…No modelo que considera a Medida GR6, indicativa da agregação de todas as métricas de gerenciamento de resultados, são reveladas associações significantes e positivas no que tange à origem do capital; como esperado, as empresas de origem familiar tendem a se colocar em níveis mais altos de gerenciamento de resultados que as demais, maior possibilidade de utilização de accruals discricionários no reporte dos lucros contábeis (BOZEC, 2008). Observa-se que a origem do capital das empresas, independente de sua procedência, exercem forte discricionariedade no uso dos accruals.…”