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Effects of Corporate Ownership Structure on Earnings Conservatism

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  • Fan-Hua Kung
  • Chia-Ling Cheng
  • Kieran James

Abstract

This paper investigates the incremental effects of corporate ownership structure on earnings conservatism, examining data of Chinese listed companies. We employ the concept of conditional conservatism to define earnings conservatism and adopt empirical models developed by Basu (1997) and Ball and Shivakumar (2005) to measure the degree of earnings conservatism. Our empirical results show that the earnings of companies with higher non-tradable shares have lower earnings conservatism. Consistent with prior studies, this point demonstrates that the companies with state and concentrated ownership structures are more likely to depend on private communication to reduce information asymmetry and to resolve agency problems internally, thereby creating a low demand for earnings conservatism. The results of this study contribute to our understanding of how companies’ ownership structures affect the properties of earnings in emerging markets and post-Communist markets. Keywords- earnings conservatism, non-tradable shares, ownership structure, post-Communist studies, split-share structure, state ownership JEL Classifications- M40, M41, M49

Suggested Citation

  • Fan-Hua Kung & Chia-Ling Cheng & Kieran James, 2010. "Effects of Corporate Ownership Structure on Earnings Conservatism," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 2(1), pages 4767-4767, December.
    • Handle: RePEc:mth:ajfa88:v:2:y:2010:i:1:p:47-67
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    References listed on IDEAS

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    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    4. Jaggi, Bikki & Low, Pek Yee, 2000. "Impact of Culture, Market Forces, and Legal System on Financial Disclosures," The International Journal of Accounting, Elsevier, vol. 35(4), pages 495-519, 010.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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