Ownership structure and real earnings management: An empirical study on emerging economy

Debnath, Nitai Chandra; Chowdhury, Suman; Khan, Safaeduzzaman

doi:10.22495/cocv18i2art6

Cited by 15 publications

(10 citation statements)

References 83 publications

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“…Chan et al (2015) have shown that firms owned by institutional investors alternate between AEM and REM because they have strong incentives to achieve short-term profit targets. Recently, Debnath et al (2021) found a positive relationship between institutional ownership and REM.…”

Section: Institutional Ownershipmentioning

confidence: 99%

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Ownership structure and real earnings management: evidence from an emerging market

Al-Duais

Malek

Hamid

et al. 2021

JAEE

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PurposeThis study aims to investigate the monitoring role of ownership structure (OWS) on real earnings management (REM) practices; previous studies primarily examined the effect of OWS on accrual-based earnings management.Design/methodology/approachThe sample of this study is 490 companies listed on the Malaysian Stock Exchange during the period 2013–2016 (1,960 company-year observations). The regression of a feasible generalized least square was used for data analysis. The authors use three regression models ordinary least squares, panel-corrected standard errors and Driscoll–Kraay standard errors to corroborate the findings and also examine alternative REM measures.FindingsAnalysis of the data shows that family, foreign and institutional ownership has a positive link with the quality of financial reporting and, to a large extent, is capable of alleviating REM. The findings also indicate that some form of OWS significantly affects REM, corroborating existing theories on corporate governance (CG) and the perspectives of practitioners.Practical implicationsThe evidence concerns the significant role played by the OWS in reducing REM activities. The findings are useful in support of regulatory activities, particularly in the design of policies to regulate the OWS. The results may also provide useful insights to inform other policymakers, investors, shareholders and researchers about the active role of family, foreign and institutional investors in monitoring Malaysia's public listed companies (PLCs) to strengthen CG practices. This also leads to less REM and enhances the quality of financial reporting.Originality/valueTo the authors' knowledge, this work is pioneering research from a developing country, specifically from Malaysia, to investigate the manner in which all possible OWSs influence REM. More importantly, the study recommends that regulators and researchers do not envisage OWS as a holistic phenomenon.

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Section: Institutional Ownershipmentioning

confidence: 99%

“…Ajay and Madhumathi (2015), Alzoubi (2016) and Choi et al (2020) provided similar evidence that foreign ownership diminishes the opportunistic use of discretionary accruals. Guo et al (2015) and Debnath et al (2021) have documented that sophisticated foreign ownership plays a significant role in limiting REM.…”

Section: Foreign Ownershipmentioning

confidence: 99%

Ownership structure and real earnings management: evidence from an emerging market

Al-Duais

Malek

Hamid

et al. 2021

JAEE

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“…Using a sample of firms from 76 developed and emerging economies, Lel (2019) finds that the presence of foreign shareholders constrains earnings management and alleviates information asymmetry. Debnath et al (2021) submit that foreign ownership boosts the financial oversight of Bangladeshi firms and consolidates their governance structure leading to enhanced quality of financial information. Alzoubi (2016) finds that the presence of foreign investors in the Jordanian firms has a positive impact on FRQ measured by the modified Jones model.…”

Section: Board Compositionmentioning

confidence: 99%

Corporate governance and financial reporting quality: a comparative study

Hasan

Aly

Hussainey

2022

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Purpose This paper aims to investigate the impact of corporate governance on financial reporting quality (FRQ) in Pakistan and the UK. Design/methodology/approach In this paper, three accrual-based models are used to analyse FRQ for a sample of 1,550 firm-year observations, including 78 Pakistani firms and 77 UK firms, for the period 2009–2018. Findings The analysis shows that board size has a negative impact on FRQ while foreign ownership has a positive impact for Pakistani and UK firms. It also shows that board independence has a positive impact on FRQ of Pakistani firms, while board meetings frequency and audit committee independence have a negative impact. We make no such observation for UK firms. In addition, the analysis shows that board gender diversity and ownership concentration negatively affect FRQ of UK firms. This study makes no such observation for Pakistani firms. Research limitations/implications Due to the study’s focus on Pakistani and UK firms, the findings may not be generalizable to other developed and emerging economies. Practical implications The findings provide valuable insight to policymakers, regulators and investors by suggesting that the impact of board composition on FRQ of both Pakistani and UK firms is weak. The findings suggest that board size and foreign ownership are the attributes that require regulatory focus to increase FRQ. The negative impact of audit committee independence on FRQ induces rethinking among the policymakers in Pakistan and calls for fully independent audit committees. Originality/value To the best of the authors’ knowledge, this is the first research endeavour to compare the context of a developed and an emerging economy regarding the impact of corporate governance on FRQ. It also contributes to the governance literature by using three measures of FRQ and a comprehensive set of corporate governance attributes.

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“…While some studies have indicated that foreign ownership helps to restrict earnings management practices (Choi, Chung, Kim, Kim, & Choi, 2020;Debnath, Chowdhury, & Khan, 2021), others have concluded that foreign investors have no significant impact on earnings manipulation (Al-Haddad & Whittington, 2019).…”

Section: H5: a Statistically Significant Relationship Exists Between ...mentioning

confidence: 99%

Does Corporate Governance Constrain Earnings Management in an Unstable Economic and Political Environment?

Hassan

Abousamak

Hijazi

2022

5002

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The purpose of this research is to examine the effects of corporate governance structures on earnings management behavior in a weakly governed and politically unstable environment. A panel of data from 35 non-bank companies listed on the Palestine Exchange between 2012 and 2019 was employed. A fixed effects regression model was used to examine the impact of certain board characteristics (board size, board meetings, and audit committee formation) and ownership structures (institutional ownership, foreign ownership, and ownership concentration) on earnings management in the volatile and risky political and economic environment of Palestine. The findings indicate that corporate governance and ownership systems in Palestine appear to be ineffective in constraining earnings management practices. None of the board attributes appear to constrain earnings management practices. However, there is weak evidence to show that ownership concentration has some effect in curbing earnings manipulation. The findings of this study are expected to increase awareness among Palestinian regulators, investors, and other policymakers regarding the role of boards of directors and institutional and foreign shareholders in monitoring Palestinian listed companies to enhance corporate governance and the quality of financial reporting.

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Ownership structure and real earnings management: An empirical study on emerging economy

Cited by 15 publications

References 83 publications

Ownership structure and real earnings management: evidence from an emerging market

Ownership structure and real earnings management: evidence from an emerging market

Corporate governance and financial reporting quality: a comparative study

Does Corporate Governance Constrain Earnings Management in an Unstable Economic and Political Environment?

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