Articlegold2019

The Influence of a Company’s Ownership Structure on Upward Real Earnings Management

52 citations0/0 files storedSustainability

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Financial transparency, including transparency of transactions, is one of the pillars of sustainability. This study investigates whether a company’s ownership structure, including ownership concentration, managerial ownership, and the presence of institutional investors, affects upward real earnings management practices. The research is based on companies listed on the Warsaw Stock Exchange in Poland adapting panel data regression models. The significance and contribution to literature of the paper lies in the fact that we provide evidence that the association between the magnitude of total upward real earnings management and shareholder concentration is U-shaped, thereby indicating that there is an optimal level of ownership concentration, minimizing the magnitude of upward real earnings management and thus increasing financial transparency. Our results show the negative relationship between total upward real earnings management and managerial ownership, thereby we confirm the alignment of interest hypothesis, in terms of real earnings management. We also confirm that individual instruments of real earnings management are linked to ownership concentration and managerial ownership in specific ways. The presence of institutional investors reduces the magnitude of total upward real earnings management.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1997A Survey of Corporate Governance 1991Earnings Management During Import Relief Investigations 1988Management ownership and market valuation 2003Earnings Management through Real Activities Manipulation 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*

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2022Corporate Social Responsibility Disclosure (CSRD) and Financial Distressed Risk (FDR): Does Institutional Ownership Matter?2021Ownership structure and real earnings management: evidence from an emerging market 2023Corporate governance mechanisms and earnings management: The moderating role of female directors 2020The effect of earnings quality and bank continuity: the moderating role of ownership structure and CSR 2022Earnings Management and Corporate Performance in the Scope of Firm-Specific Features

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