Ownership structures, corporate governance and earnings management in the European Oil Industry
AbstractIn this paper we investigate the impact of corporate governance and ownership structure variables on earnings management in the European oil industry. We used quarterly data and a panel data methodology. The findings show non-linear relationships among institutional investors ownership and governmental ownership with the magnitude of earnings management. For institutional investors ownership we found a positive association within lower levels of ownership (consistently with the short-term transient view of institutional investors shareholding) and a negative association within higher levels of ownership (consistently with the long-term orientation view of institutional investors, playing a monitoring role over the company’s financial performance). For governmental ownership, we found that a positive association within lower levels of ownership, consistently with the incentives for oil companies to avoid closer political scrutiny on the reported results (political costs hypothesis). We found a negative association with earnings management magnitude in firms where governments are the controlling shareholders or a large blockholders. The findings also show that relevant governance variables, such as the proportion of independent directors, the audit committees size and meeting frequency, contribute to constrain earnings management. Overall, the results suggest that key variables related to ownership and governance structures impact on earnings management across different national settings and governance systems. Moreover, the relationship of ownership structures with earnings management appears to be complex and varying at different levels of ownership. This study could have several practical implications. Firstly, accountability and stricter control could be two issues for firms where governments are shareholders that engages in earnings management practices. Secondly, higher participation of institutional investors in the ownership and in the governance may be beneficial may be an effective monitoring device over earnings manipulation. Finally, the homogeneous results could mean that governance practices are more integrated at an European level than the national governance models and codes’ recommendations are.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 37198.
Date of creation: Mar 2012
Date of revision:
earnings management; ownership structures; corporate governance;
Find related papers by JEL classification:
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- G3 - Financial Economics - - Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
- NEP-BEC-2012-03-21 (Business Economics)
- NEP-ENE-2012-03-21 (Energy Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Beatriz García Osma & Belén Gill-de-Albornoz Noguer, 2007. "The Effect of the Board Composition and its Monitoring Committees on Earnings Management: evidence from Spain," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1413-1428, November.
- Daniel Bergstresser & Thomas Philippon, 2003.
"CEO incentives and earnings management,"
862, Federal Reserve Bank of Chicago.
- Cornett, Marcia Millon & Marcus, Alan J. & Tehranian, Hassan, 2008. "Corporate governance and pay-for-performance: The impact of earnings management," Journal of Financial Economics, Elsevier, vol. 87(2), pages 357-373, February.
- Cornett, Marcia Millon & McNutt, Jamie John & Tehranian, Hassan, 2009. "Corporate governance and earnings management at large U.S. bank holding companies," Journal of Corporate Finance, Elsevier, vol. 15(4), pages 412-430, September.
- Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
- Siregar, Sylvia Veronica & Utama, Sidharta, 2008. "Type of earnings management and the effect of ownership structure, firm size, and corporate-governance practices: Evidence from Indonesia," The International Journal of Accounting, Elsevier, vol. 43(1), pages 1-27, March.
- Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
- Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
- Jaggi, Bikki & Leung, Sidney & Gul, Ferdinand, 2009. "Family control, board independence and earnings management: Evidence based on Hong Kong firms," Journal of Accounting and Public Policy, Elsevier, vol. 28(4), pages 281-300, July.
- Xie, Biao & Davidson, Wallace III & DaDalt, Peter J., 2003. "Earnings management and corporate governance: the role of the board and the audit committee," Journal of Corporate Finance, Elsevier, vol. 9(3), pages 295-316, June.
- Warfield, Terry D. & Wild, John J. & Wild, Kenneth L., 1995. "Managerial ownership, accounting choices, and informativeness of earnings," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 61-91, July.
- DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
- Juan Pedro Sánchez-Ballesta & Emma García-Meca, 2007. "Ownership Structure, Discretionary Accruals and the Informativeness of Earnings," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(4), pages 677-691, 07.
- Irene Karamanou & Nikos Vafeas, 2005. "The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 453-486, 06.
- Park, Yun W. & Shin, Hyun-Han, 2004. "Board composition and earnings management in Canada," Journal of Corporate Finance, Elsevier, vol. 10(3), pages 431-457, June.
- K.V. Peasnell & P.F. Pope & S. Young, 2005. "Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1311-1346.
- David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
- Michael E. Porter, 1992. "Capital Choices: Changing The Way America Invests In Industry," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 4-16.
- Kraft, Anastasia & Lee, Bong Soo & Lopatta, Kerstin, 2014. "Management earnings forecasts, insider trading, and information asymmetry," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 96-123.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.