Dividend policy, earnings management and the moderating effect of corporate governance in the French context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Dividend Policy ◽  
Legal Protection ◽  
Moderating Effect ◽  
Least Square ◽  
Governance Mechanisms ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to examine the moderating effect of corporate governance on the impact of earnings management on dividend policy. Design/methodology/approach In this paper, the authors selected French non-financial companies listed on the CAC All Tradable index during the 2008–2015 period. Feasible generalized least square regression method is used to estimate the econometric models. Findings The empirical results allowed the authors to confirm and/or reject certain hypotheses. First, the ownership concentration seems to positively moderate the impact of earnings management on dividend policy. Another conclusion that the authors have been able to draw is that the effect of earnings management on dividend policy is more favorable in the case of firms with a small director’s board. Practical implications Our results have shown that French firms run earnings to inform the market that they can distribute dividends. Therefore, we recommend that the various partners of the firm pay more attention to the governance mechanisms of these types of companies and, in particular, in countries where foreign investors suffer from weak legal protection (Easterbrook, 1984; Gomes, 2000; La Porta et al., 2000 and Athari et al., 2016). In fact, standardization bodies, the Ministry of Finance, external auditors and stock exchange organizer must focus on sophisticated governance mechanisms to ensure better quality of financial reporting. Originality/value To our knowledge, no other research has examined whether the impact of earnings management on dividend policy varies significantly with the moderating effect of certain governance mechanisms in France.

Do manufacturing firms in Bangladesh engage in earnings management to avoid losses? Further evidence using the governance elements as monitors

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bishnu Kumar Adhikary ◽  
Ranjan Kumar Mitra ◽  
Mohammad Rajon Meah
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Manufacturing Firms ◽  
Policy Implications ◽  
Governance Mechanisms ◽  
Management Behavior ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose This study aims to investigate the earnings management practices of the listed manufacturing firms in Bangladesh and assess the impact of corporate governance mechanisms on such earnings management behavior. Design/methodology/approach The study applies the real earnings management (REM) model developed by Dechow et al. (1998) and implemented by Roychowdhury (2006) and modified Jones model (1991) for the proxy of accrual-based earnings management (AEM). It uses a pooled ordinary least square regression model corrected with robust standard errors for empirical analysis. Findings The study finds that firms with small positive earnings per share are engaged in AEM to avoid losses. Also, firm managers craft discretionary expenses to manage real earnings. For governance factors, the institutional shareholders tend to play a significant role in limiting both REM and AEM embedded in generally accepted accounting principles or International Financial Reporting Standards. Also, factors such as foreign ownership and board size significantly restrict REM, whereas director ownership encourages the same. The paper does not reveal any significant monitoring role for other governance factors in curbing either REM or AEM practices by Bangladeshi firms. Research limitations/implications The paper studies the monitoring role of governance mechanisms on listed manufacturing firms’ earnings management. A study of separating the listed firms into family and non-family ones could be interesting for future research. Practical implications The paper unveils earning management techniques used by firms in Bangladesh and provides critical policy implications to the corporate governance mechanisms that effectively limit earnings management practice. Social implications The social significance is to aware constituents of financial reporting about the earnings management behavior by firms in emerging economies. Originality/value The study adds to evidence that the manufacturing firms in Bangladesh adopt both REM and AEM techniques to avoid losses. Simultaneously, the paper highlights some critical governance factors that can restrict misleading earnings management behavior by firms in an emerging economy to assist in policymaking.

Corporate governance mechanisms and R&D intensity in OECD courtiers

2020 ◽  
Vol 20 (5) ◽  
pp. 863-885
Author(s):  
Aws AlHares
Keyword(s):  
Corporate Governance ◽  
Risk Taking ◽  
Oecd Countries ◽  
Least Square ◽  
European Countries ◽  
Board Structure ◽  
Governance Mechanisms ◽  
Content Type ◽  
Anglo American ◽  
The Impact

Purpose This study aims to investigate the impact of ownership structure and board structure on risk-taking as measured by research and development (R&D) Intensity in OECD countries. Design/methodology/approach A panel data of 300 companies from Anglo American and European countries between 2010 and 2016 were used. The ordinary least square multiple regression analysis procedure is used to examine the relationships. The findings are robust to alternative measures and endogeneities. Findings The results show that institutional ownership, board size, independent directors and board diversity are negatively related to risk-taking, with greater significance among Anglo American countries than among Continental European countries. In contrast, the results show that director ownership is statistically insignificant. Originality/value This study extends and contributes to the extant corporate governance (CG) literature, by offering new evidence on the effect of ownership and board structure on risk-taking between two different traditions. The findings will help regulators and policy-makers in the OECD countries in evaluating the adequacy of the current CG reforms to prevent management misconduct and scandals. These findings are relevant for companies aiming to adopt the most suitable governance mechanisms to pursue their R&D objectives and for policymakers interested in promoting R&D investment.

The impact of corporate governance mechanisms on earnings management in Islamic banks in the Middle East region

2016 ◽  
Vol 7 (4) ◽  
pp. 318-348 ◽  
Author(s):  
Hounaida Mersni ◽  
Hakim Ben Othman
Keyword(s):  
Corporate Governance ◽  
Middle East ◽  
Earnings Management ◽  
Audit Committee ◽  
Islamic Banks ◽  
Governance Mechanisms ◽  
Loan Loss ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose The purpose of this paper is to examine whether corporate governance mechanisms affect the reporting of loan loss provisions by managers in Islamic banks in the Middle East region. Design/methodology/approach This empirical study uses balanced panel data from 20 Islamic banks, from seven Middle East countries for the period 2007 to 2011. The regression model is estimated using random effects specifications. Findings The empirical results show that discretionary loan loss provisions (DLLP) are negatively related to board size and the existence of an audit committee. Results also report a positive relationship between sharia board size and DLLP. This indicates that small sharia supervisory boards are more effective than larger ones, which could be due to the higher costs and negative effects of large groups on decision-making. Results also highlight that the existence of scholars with accounting knowledge sitting on the sharia board reduces discretionary behavior. Additional results provide evidence that an external sharia audit committee is also found to reduce discretion in Islamic banks. The conclusions are found to be robust to endogeneity issues and potentially omitted variables. Practical implications The findings are potentially useful for regulators and shareholders. Regulators could use the findings to focus on corporate governance mechanisms that restrain earnings management practices in Islamic banks and implement regulations to strengthen them. Additionally, this study gives shareholders further insight which enables them to better monitor the actions of managers and thus increase their control over their investments. Originality/value This study provides two contributions to the literature on Islamic banking. First, to the authors’ knowledge, this study is only the second piece of research focused on the impact of corporate governance on earnings management in Islamic banks. Second, the authors have examined the effect of some new corporate governance mechanisms that have not been studied previously in the research literature.

Earnings management, financial performance and the moderating effect of corporate social responsibility: evidencefrom France

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Salma Chakroun ◽  
Anis Ben Amar ◽  
Anis Ben Amar
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Earnings Management ◽  
Financial Performance ◽  
Moderating Effect ◽  
Least Square ◽  
Content Type ◽  
Academic Researchers ◽  
Corporate Social ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of earnings management on financial performance. In addition, the authors investigate whether corporate social responsibility has a moderating effect on the impact of earnings management on financial performance. Design/methodology/approach The empirical study is based on a sample of French companies listed on the CAC-All-Tradable index over the period 2008–2018. Feasible generalized least square regression method is used to estimate the econometric models. Findings Based on panel data of 3,003 French firm-year observations, the authors demonstrate that earnings management has a negative and significant impact on financial performance. Indeed, corporate social responsibility moderates positively the negative impact of earnings management on financial performance in the French context. Practical implications The findings have several implications for regulatory, investors and academic researchers. For regulators, it is appropriate to promote more several standards related to corporate social responsibility and earnings management. For investors, considering societal issues is very important in making decisions. For academic researchers, the results show that it is important to discover how corporate social responsibility can influence the relation between earnings management and financial performance. Originality/value The existing literature has generally focused on the impact of earnings management on financial performance and the empirical tests did not yield similar results. The study shows that corporate social responsibility has a moderating role in determining the impact of earnings management on financial performance.

Corporate governance and fraudulent financial reporting

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vahab Rostami ◽  
Leyla Rezaei
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Valuable Insight ◽  
Fraudulent Financial Reporting ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
Financial Expertise ◽  
The Impact

Purpose This study aims to trace the impact of corporate governance and its mechanisms in preventing companies from turning to fraudulent financial reporting. Design/methodology/approach For this purpose, using the systematic elimination pattern, the information of 187 listed companies on the Tehran Stock Exchange over six years from 2013 to 2019 were collected, and the hypotheses were examined using a linear regression model. To measure fraudulent financial reporting, the adjusted model of Beneish (1999) was used to evaluate corporate governance. Its mechanisms based on nine corporate governance mechanisms, including board independence, board remuneration, CEO financial expertise, expertise in CEO industry, board financial expertise, board industry expertise, board effort, CEO duality and managerial ownership, have been examined. These mechanisms are calculated as a combined index of corporate governance. Findings The findings indicate that robust corporate governance significantly reduces companies’ intention toward fraudulent financial reporting. In the same way, a negative and significant relationship was observed between each of the nine corporate governance mechanisms, except for board compensation and fraudulent financial reporting. Originality/value This study’s findings provide valuable insight into the importance of strengthening companies to prevent companies’ managers from engaging in fraudulent financial reporting activities. Hence, it is suggested that professional references bodies more seriously follow the rules to dictate to companies for using and empowering their corporate governance.

Did corporate governance mechanisms affect earnings management? Further evidence from GCC Islamic banks

2017 ◽  
Vol 10 (1) ◽  
pp. 2-23 ◽  
Author(s):  
Mohamed Chakib Kolsi ◽  
Rihab Grassa
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Negative Relationship ◽  
Governance Mechanisms ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provision ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose The aim of this paper is to examine the impact of corporate governance mechanisms on earnings management practice for a sample of Gulf Cooperation Council (GCC) Islamic banks (IBs) using a new model of earnings management. Design/methodology/approach First, the authors estimate discretionary accruals based on loan loss provisions discretionary loan loss provision (DLLP) using the procedure derived from Jones’ (1991) original model. Second, the authors run a multivariate regression model to check the linkage between corporate governance characteristics and discretionary loan loss provision. Finally, the authors use an additional sensitivity check analysis to assess whether the results are robust to the estimation procedure and to other exogenous factors. Findings Using as sample of 26 IBs pertaining to the GCC region with a total of 223 firm-year observations and a nine-year period (2004-2012), the results are conclusive and show that first, IBs with large Shariah Board size manage less DLLP. Secondly, Accounting and Auditing Organization for Islamic Financial Institutions membership positively impacts earnings management through DLLP in IBs. Third, there is a negative relationship between boards of director’s independence the extent to which IBs manage DLLP. Fourth, the existence of block holders positively affects earnings management by IBs. Fifth, there is a negative relationship between audit committee meetings and DLLP. Finally, institutional ownership and bank size have no effect on earnings management through DLLPs. Research limitations/implications In this research, the authors do not take into account all governance factors that are supposed to impact earnings management in IBs. Future research should explore the impact of additional IBs governance structures including chief executive officer bonus, experience, gender and the extent to which IBs use real earnings management with Murabaha, Mudaraba and Musharaka transactions. Practical implications The paper is a very useful source of information that may provide relevant guidelines in helping the future development of corporate governance of IBs. In addition, the findings could prove to be useful for regulators because they are responsible for the acceptable level of corporate governance standards. Thus, they must consider strengthening governance mechanisms either through new legislation or stronger enforcement where earnings management is of such magnitude to that serious impedes information transparency and financial reporting quality of IBs. Originality/value This study associates the corporate governance characteristics with earnings management by IBs. The study contributes to the growing body of literature on earnings management and corporate governance in IBs. It should be useful to researchers, regulators, investors, analysts and creditors as well as other players in the capital markets, as it presents a new and important aspect that needs to be accounted for when assessing the quality of IBs’ accounting information in GCC countries.

scholarly journals The impact of corporate governance mechanisms on real and accrual earnings management practices: evidence from Jordan

2019 ◽  
Vol 19 (6) ◽  
pp. 1167-1186 ◽  
Author(s):  
Lara Al-Haddad ◽  
Mark Whittington
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Management Practices ◽  
Reporting Quality ◽  
Content Type ◽  
Public Firms ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose This paper aims to investigate the impact of corporate governance (CG) mechanisms on real (REM), accrual-based earnings management (AEM) and REM/AEM interaction in Jordan following the 2009 Jordanian CG Code (JCGC). Design/methodology/approach The study used a sample of 108 Jordanian public firms covering 2010-2014. Hypotheses are tested using pooled OLS-regression models. Findings The authors find that both institutional and managerial ownership constrain the use of REM and AEM. In contrast, both independent directors and large shareholders are found to exaggerate such practices, and CEO-duality is found to exaggerate REM only. However, foreign ownership does not appear to have a significant impact. They further find that managers use REM and AEM jointly to obtain the greatest earnings impact. Practical implications The findings have important implications for policymakers, regulators, audit professionals and investors in their attempts to constrain earnings management (EM) practices and improve financial reporting quality in Jordan. Originality/value The authors believe this to be the first Jordanian study examining the relationship between CG mechanisms and both REM and AEM following the introduction of the 2009 JCGC, as well as the first in Jordan and the Middle East to examine board characteristics and REM. Moreover, it is the first to test for the potential substitution of REM and AEM since the 2009 JCGC enactment. As such, the findings draw attention to EM practices and the role of monitoring mechanisms in Jordan.

scholarly journals Corporate Governance And Earnings Management: A Survey Of Literature

2013 ◽  
Vol 29 (2) ◽  
pp. 391 ◽  
Author(s):  
Chi-keung Man ◽  
Brossa Wong
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Institutional Environment ◽  
Diagnostic System ◽  
Legal Protection ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms

Corporate governance can reduce or even eliminate the extent of earnings management. Normally, an institutional environment that provides better legal protection can control managers self-interest to a certain extent. Takeover force can exert market pressure on managers to do the best for shareholders. Prior studies have investigated different corporate governance mechanisms that can have negative relationships with earnings management. Board independence can enhance certain monitoring behaviors in managers, including the misappropriation of assets. Female directors can develop trust leadership, which requires managers to share information, and are more likely to be risk-averse to frauds and opportunistic earnings management. An audit committee can oversee the internal control for financial reporting and the quality of financial information. Directors with financial expertise can provide incremental control effects on earnings management, especially in firms with weak corporate governance. This paper contributes to corporate governance by providing detailed reviews of different corporate governance mechanisms, reviewing the latest findings on classification shifting, and summarizing earnings management measures, including a new diagnostic system. In the future, this new diagnostic system may be investigated in different contexts.

scholarly journals The impact of corporate governance mechanisms on financial reporting transparency

2017 ◽  
Vol 14 (3) ◽  
pp. 25-33 ◽  
Author(s):  
Samin Kohansal ◽  
Shoeyb Rostami ◽  
Zeynab Rostami
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Institutional Ownership ◽  
Board Independence ◽  
Governance Mechanisms ◽  
Management Behavior ◽  
Ceo Tenure ◽  
Corporate Governance Mechanisms ◽  
The Impact

Corporate governance has been raised as one of the most important issues among the international business environment since the beginning of the twenty-first century. At first, corporate governance basic principles focused on firm’s strategies and the rights of their shareholders but these principles has been changed into the rights of all stakeholders and society through researchers new viewpoints. Although corporate governance codes and regulations are different in various countries, there is a common unanimity that better compliance of corporate governance improves financial reporting quality and transparency. The aim of this paper is to investigate the impact of corporate governance mechanisms on financial reporting transparency in Tehran Stock Exchange over a seven year period (from 2006 to 2012). Besides we have specially reviewed related researches and topics about corporate governance in various countries which their results were discussed in different parts of the article. In order to examine the hypothesis a sample of 67 companies is used. In this paper we used ownership concentration, institutional ownership, board independence, board size, CEO duality and CEO tenure as the corporate governance mechanisms. We also used earnings management behavior by employing Kasznik model (the absolute value of abnormal accruals) as a measure of financial reporting transparency. To test research hypothesis a multiple regression with estimated generalized least square method is employed. The findings indicate that ownership concentration, institutional ownership, board independence and CEO tenure has positively affected financial reporting transparency through earnings management behavior. On the other hand board size and CEO duality has negatively affected financial reporting transparency through earnings management behavior.

scholarly journals Efficient contracting, earnings smoothing and managerial accounting discretion

2014 ◽  
Vol 15 (1) ◽  
pp. 100-123 ◽  
Author(s):  
Mohamed Khalil ◽  
Jon Simon
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Legal Protection ◽  
Income Smoothing ◽  
Least Square ◽  
Managerial Accounting ◽  
Content Type ◽  
Accounting Choices ◽  
Trade Offs ◽  
Reported Earnings

Purpose – The purpose of this paper is to examine whether the contracting incentives (i.e. bonus plans, debt covenants, political costs hypotheses), and income smoothing can explain accounting choices in an emerging country, Egypt. Design/methodology/approach – The paper uses the ordinary least square regression model to examine the relationship between earnings management and reporting objectives. A sample of 438 non-financial firms listed on the Egyptian Exchange over the period 2005-2007 is used. Findings – The paper finds that the contracting objectives explain little of the variations in accounting choices (i.e. discretionary accruals) in the Egyptian context. However, the paper finds that mangers are likely to smooth the reported earnings by managing the accrual component in an attempt to reduce the fluctuation in reported earnings by increasing (decreasing) earnings when earnings are low (high) in attempt to reduce the variability of the reported earnings. Research limitations/implications – The empirical results rely on the ability of earnings management proxies to adequately capture earnings manipulation activities. Practical implications – The findings of the study should be of substantial interest to regulators and policy makers. The results implicitly contribute to the ongoing argument in relation to the optimal flexibility permitted by standard setting and the argument that tightening the accounting standards and mandating International Financial Reporting Standards are likely to improve reporting quality and reduce opportunistic earnings management. The results reveal that many of the weaknesses related to corporate reporting in emerging countries may result from the inadequate enforcement of the law and the weak legal protection of minority shareholders. The results also highlight the crucial role of understanding the reporting incentives, which is mainly shaped by institutional and market forces and the legal environment, in explaining accounting choices. Originality/value – Unlike previous studies that tested an individual objective, this study examines the trade-offs among various reporting objectives in an emerging economy.

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