The joint effect of internal and external governance on earnings management and firm performance

Abstract

This study examines whether shareholders use internal governance mechanisms (i.e., manager compensation, shareholder rights protection at firm level) to substitute for weak external governance (i.e., investor protection mechanisms at country level) in restricting earnings management. We find that the impacts of internal governance on earnings management are stronger in countries with weak external governance. Examining the consequence of earnings management on firm performance, we find that internal governance restricts earnings management more efficiently than external governance. This study extends prior literature by quantifying the impacts of internal and external governance on earnings management and firm performance. Our findings suggest that investors should pay more attention to internal governance than to external governance in controlling for earnings management.

The Operational Risk Disclosure Threshold Effect in the Earnings Management–Sustainability Firm Performance Nexus in Saudi Arabia: A Dynamic Panel Threshold Regression Model

“…Indeed, most prior research has concentrated on the determinants of operational risk disclosure [66][67][68] or on the impact of other factors on operational risk disclosure [69][70][71][72], with various results. Other recent research has examined whether governance (or others) moderates a relationship between earnings management and firm performance [25,26]. Particularly, Ref.…”

“…Previous studies have shown that higher-quality operational risk disclosure can improve firm performance and reduce the cost of equity [8,21,22], while other studies have found that risk disclosure can reduce the cost of capital and management's tendency to misreport earnings [23,24]. Other recent research has examined the moderator effect of corporate governance (or other factors) on the relationship between earnings management and firm performance [25,26].…”

How does multi‐agent govern corporate greenwashing? A stakeholder engagement perspective from “common” to “collaborative” governance

“…When corporate violations are reported in the media, managers may take a variety of defensive measures, such as changing internal controls, to mitigate the impact of negative publicity on the company (Duong et al, 2022). Internal supervision is an important part of a corporate own internal control.…”

“…Management entrenchment refers to the behavior of managers who choose to maintain their positions and maximize their own utility when their careers are threatened and pressured by dismissal or takeover (García‐Sánchez et al, 2020; Florackis & Ozkan, 2009). When corporate violations are reported in the media, managers may take a variety of defensive measures, such as changing internal controls, to mitigate the impact of negative publicity on the company (Duong et al, 2022). Internal supervision is an important part of a corporate own internal control.…”

Gerenciamento de resultados contábeis nos clubes de futebol do brasil: há diferenças após a implementação do profut?

“…A literatura de gerenciamento de resultados, em sua maioria, analisa as empresas listadas em bolsa (e.g. Duong, Kang, & Salter, 2022;Owusu, Zalata, Omoteso, & Elamer, 2022). Isso acontece principalmente pelo fato de que existe uma exigência na qualidade das informações contábeis para tomada de decisão, com ênfase nos acionistas e demais agentes (Consoni, Colauto & Lima, 2017;Paulo & Mota, 2019;Rodrigues, Melo & Paulo, 2019) Frise-se que gerenciamento de resultados não é sinônimo de contabilidade fraudulenta, pois a primeira enquadra-se dentro da permissividade das normas contábeis, ainda que ambas possam dissimular a realidade em algum nível.…”