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Does the Latin Corporate Governance Model perform worse than others in preventing earnings management?

Author

Listed:
  • Carlos F. Alves

    () (Faculdade de Economia da Universidade do Porto)

  • Ernesto Fernando R. Vicente

    () (Universidade Federal de Santa Catarina)

Abstract

In this paper, by using a database of Portuguese and Brazilian firms, where the Latin Corporate Governance Model is traditionally predominant but increasingly out of fashion, we investigate whether the Latin Corporate Governance Model performs worse or better than others (variants of the Continental or Anglo-Saxon Models) in preventing earnings management. We conclude that, in general, companies with the Latin Model have lower levels of earnings management than the other companies, and that changing from the Latin Model to another model does not cause a decrease in the level of discretionary accruals. We also conclude that the firms that move away from the Latin Model are not necessarily those with the higher levels of discretionary accruals. Finally, we conclude that firms that are dual listed (through ADR) have lower levels of discretionary accruals, but firms which have the state as a qualified shareholder do not usually differ significantly from others.

Suggested Citation

  • Carlos F. Alves & Ernesto Fernando R. Vicente, 2012. "Does the Latin Corporate Governance Model perform worse than others in preventing earnings management?," FEP Working Papers 447, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:fepwps:447
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    File URL: http://www.fep.up.pt/investigacao/workingpapers/wp447.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Bartov, Eli & Gul, Ferdinand A. & Tsui, J.S.L.Judy S. L., 2000. "Discretionary-accruals models and audit qualifications," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 421-452, December.
    3. Carlos Alves & Victor Mendes, 2001. "Corporate Governance Policy and Company Performance: The Case of Portugal," FEP Working Papers 112, Universidade do Porto, Faculdade de Economia do Porto.
    4. 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.
    5. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    6. 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.
    7. Vives,Xavier (ed.), 2006. "Corporate Governance," Cambridge Books, Cambridge University Press, number 9780521032032, May.
    8. repec:bla:joares:v:29:y:1991:i:2:p:193-228 is not listed on IDEAS
    9. Agrawal, Anup & Chadha, Sahiba, 2005. "Corporate Governance and Accounting Scandals," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 371-406, October.
    10. repec:bla:joares:v:33:y:1995:i:2:p:353-367 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    corporate governance; earnings management; accounting disclosure; government policy and regulation;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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