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Large shareholders and the pressure to manage earnings

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  • Guthrie, Katherine
  • Sokolowsky, Jan
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    Abstract

    We present empirical evidence that firms inflate earnings around seasoned equity offerings in the presence of large outsider blockholdings, but not in their absence. The finding is robust to several alternative explanations, including differences in firm characteristics, growth, performance, CEO incentives, and capital usage. While we do not dispute that CEOs behave opportunistically, we challenge that earnings management is solely a symptom of weak governance. We conclude that strengthening shareholder power to alleviate the conflict between shareholders and management can also have the unintended consequence of intensifying the conflict between current and future shareholders.

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    File URL: http://www.sciencedirect.com/science/article/B6VFK-4Y70C4H-1/2/8f2029bdd1233215af48a739de261b6a
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 16 (2010)
    Issue (Month): 3 (June)
    Pages: 302-319

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    Handle: RePEc:eee:corfin:v:16:y:2010:i:3:p:302-319

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Blockholder monitoring Corporate governance Earnings management Equity offerings Insider-outsider conflict;

    References

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    Cited by:
    1. Yves Mard & Sylvain Marsat, 2011. "Gestion des résultats comptables et structure de l'actionnariat : le cas français," Post-Print hal-00650550, HAL.
    2. 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.

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