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The Impact of Dual Class Structure on Earnings Management Activities

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  • Van Thuan Nguyen
  • Li Xu

Abstract

This paper hypothesizes and finds that firms with dual class structure are less likely to engage in earnings management activities than firms with single class structure. The paper also finds that within the sample of firms with dual class structure, earnings management activities are positively associated with managerial cash flow rights, but marginally and negatively associated with managerial voting rights. In addition, the divergence between voting rights and cash flow rights has a marginally negative impact on earnings management. Finally, in a sample of firms switching from dual class structure to single class structure, earnings management activities increase following the switch.

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  • Van Thuan Nguyen & Li Xu, 2010. "The Impact of Dual Class Structure on Earnings Management Activities," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3‐4), pages 456-485, April.
    • Handle: RePEc:bla:jbfnac:v:37:y:2010:i:3-4:p:456-485
    DOI: 10.1111/j.1468-5957.2010.02203.x
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    5. Jordan, Bradford D. & Kim, Soohyung & Liu, Mark H., 2016. "Growth opportunities, short-term market pressure, and dual-class share structure," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 304-328.
    6. Andrzej Piosik, 2021. "Revenue Identification in Attaining Consensus Estimates on Income Predictions: The Function of Ownership Concentration and Managerial Ownership Confirmation from Poland," Sustainability, MDPI, vol. 13(23), pages 1-16, December.
    7. Andrzej Piosik & Ewa Genge, 2019. "The Influence of a Company’s Ownership Structure on Upward Real Earnings Management," Sustainability, MDPI, vol. 12(1), pages 1-24, December.
    8. Li, Ting & Zaiats, Nataliya, 2017. "Information environment and earnings management of dual class firms around the world," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 1-23.
    9. Jordan, Bradford D. & Liu, Mark H. & Wu, Qun, 2014. "Corporate payout policy in dual-class firms," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 1-19.
    10. Post Raj Pokharel, 2013. "Managerial Entrenchment and Capital Structure Decision: A Case of Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 25(2), pages 78-89, October.
    11. Khurana, Inder K. & Raman, K.K. & Wang, Dechun, 2013. "Weakened outside shareholder rights in dual-class firms and timely loss reporting," Journal of Contemporary Accounting and Economics, Elsevier, vol. 9(2), pages 203-220.
    12. Pelucio-Grecco, Marta Cristina & Geron, Cecília Moraes Santostaso & Grecco, Gerson Begas & Lima, João Paulo Cavalcante, 2014. "The effect of IFRS on earnings management in Brazilian non-financial public companies," Emerging Markets Review, Elsevier, vol. 21(C), pages 42-66.
    13. Angelica Gonzalez & Paul André, 2014. "Board Effectiveness and Short Termism," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 185-209, January.
    14. Sah, Nilesh B. & More, Deepak G., 2022. "Dual class firms and trade credit," Finance Research Letters, Elsevier, vol. 46(PA).
    15. Marta Cristina Pelucio Grecco, 2013. "The Effect of Brazilian convergence to IFRS on earnings managment by listed Brazilian nonfinancial companies," Brazilian Business Review, Fucape Business School, vol. 10(4), pages 110-132, October.
    16. Vasiliki E. Athanasakou, 2010. "Discussion of The Impact of Dual Class Structure on Earnings Management Activities," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3‐4), pages 486-494, April.
    17. Lucy Lim, 2016. "Dual-class versus single-class firms: information asymmetry," Review of Quantitative Finance and Accounting, Springer, vol. 46(4), pages 763-791, May.
    18. Post Raj Pokharel, 2013. "Managerial Entrenchment and Capital Structure Decision: A Case of Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 25(2), pages 78-89, October.
    19. Vasiliki E. Athanasakou, 2010. "Discussion of The Impact of Dual Class Structure on Earnings Management Activities," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3‐4), pages 486-494, April.
    20. Cao, Xiaping & Leng, Tiecheng & Goh, Jeremy & Malatesta, Paul, 2020. "The innovation effect of dual-class shares: New evidence from US firms," Economic Modelling, Elsevier, vol. 91(C), pages 347-357.
    21. Kałdoński, Michał & Jewartowski, Tomasz, 2020. "Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country," Finance Research Letters, Elsevier, vol. 35(C).
    22. Kałdoński, Michał & Jewartowski, Tomasz & Mizerka, Jacek, 2020. "Capital market pressure, real earnings management, and institutional ownership stability - Evidence from Poland," International Review of Financial Analysis, Elsevier, vol. 71(C).

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