Hence, earnings management practice can be minimized through monitoring mechanism to align the different interest between shareholder principal and management agent. This paper investigates the effect of corporate governance quality on earnings management in jordan. 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. The financial crisis happening in various countries, particularly in. However, taking these two phenomena together, presents a rather complex situation that needs further investigation. Jordanian evidence international business research vol. Rice 2016 states that corporate governance can be applied to increase performance effective. Pdf corporate governance quality and earnings management. Corporate governance is the set of laws, policies, and processes affecting the way a. The composition of board of directors is an important corporate governance mechanism in mitigating earnings management. The relationship between corporate social responsibility. A large body of academic literature has examined the extent to which earnings management occurs around specific corporate events in which this agency conflict is most likely to occur, but the results have been mixed. Compared with corporate governance, upward earnings management has a greater influence on reducing the level of expense stickiness because the differences due to earnings management are not only larger, but also more significant than those due to corporate governance.
Pdf corporate governance, earnings management and tax. Young describes the term as embracing two types of. Ordinary least square estimation indicates the presence of positive relationship between corporate governance and earnings management. This study will focus on the effect of corporate governance on earnings management, specially the board. Although us and european research has documented improvement in earnings quality associated with corporate governance characteristics, the situation in latin america is questionable, given the business environment in which firms operate, which is characterized by controlling family ownership and weak legal protection. In addition, the measurement of dependent variable, discre tionary accruals, and the corporate governance system moderate the association between earnings. The purpose of the research was to obtain empirical evidence that corporate governance affects the real earnings management. Earnings management and corporate governance relationships are examined for a sample of 49 portuguese listed firms considering an unbalanced panel for the period 20022017, using panel corrected standard errors models and considering the family ownership effect. An investigation of governance and fraudulent earnings. Using two groups of us firms, one with relatively high and one with relatively low levels of discretionary accruals in the year 1996, we find that earnings management is significantly associated with some of the governance practices by audit committees and boards of directors.
Corporate governance continues to be an area of importance while earnings management still appears to be a problematic issue. The role of corporate governance as strengthening internal oversight. Objective this study aims to determine the effect of earning management and corporate governance mechanisms on corporate tax avoidance. According to some of previous research, there is a correlation between corporate governance and corporate tax management. The goal of this paper is to metaanalyze the results of 35 studies that examine the effect on earnings management of. The research results according to which hypothesized that family firms tend to negatively affect with real earnings management. The roles and motivations of key players in corporate. Earnings management is the use of accounting techniques to produce financial statements that present an overly positive view of a companys business activities and financial position. Normally, an institutional environment that provides better legal protection can control managers self. Corporate governance, earnings management, discretionary accrual s, agency theory. Corporate governance and earnings management papers in the.
Introduction one of the most wellknown assumptions in accounting is going concern. Earnings management, as taken by managers, has a direct influence on current. Normally, an institutional environment that provides better legal protection can control managers selfinterest to a certain extent. Earnings management, corporate governance and expense. Economic bonding, corporate governance and earnings. Methodologytechnique corporate governance mechanisms use institutional ownership, the size of the board of commissioners, the percentage of independent commissioners, auditing committees, and. Using two groups of us firms, one with relatively high and one with relatively low levels of discretionary accruals in the year 1996, we find that earnings management is significantly associated with some of the governance practices by audit. Taken together, these results support the v iew that a moderate amount of earnings management helps improve corporate investment decisions while an excessive amount undoes the bene.
This research aims to provide empirical evidence about the effect of cg and earnings management on firm value, and the role of cg in the effect earnings management has on firm value. Using a panel data set of all industrial and service firms. Internal governance and real earnings management the. First, board independence is weakened by the introduction of government officials as independent directors on the boards. Earnings management can only be curbed when the board of directors and audit committee amongst others perform their duties well. Corporate governance, earnings management, stock exchange. Corporate governance can reduce or even eliminate the extent of earnings management. Takeover force can exert market pressure on managers to do the best for shareholders. Due to the threat of recorded business failures arising from weak corporate governance and low financial reporting quality on the nigerian economy, this study investigates the effects of corporate governance variables on earnings management among selected listed firms. They adopted meta analytic technique and analyzed 35 previous studies that examined. Does corporate governance influence earnings management in. The sec is taking renewed aim at earnings management, and this time its not just improper revenue recognition. Our csr index, using kld data, incorporates information from the following issue areas.
To minimize the tax payment, corporation conduct a corporate tax management. The malaysian code of corporate governance mccg has been issued in year 2000 and was revised in 2007. Real earnings management is difficult to detect because it is done in the real activities of companies such as sales and production. Earnings management and corporate investment decisions. Internal governance refers to the process through which key subordinate executives provide checks and balances in the organization and affect corporate decisions. Corporate governance, earnings management and financial. Pdf corporate governance and management of earnings. Did corporate governance mechanisms affect earnings.
Our more novel results address the impact of earnings management on the. Audit quality, corporate governance, and earnings management. The analysis of effects of good corporate governance on. The focus on corporate governance has been emphasized over the past decade by the activities of predators, through corporate collapses, and by previously unimaginable. The result is consistent with meca and ballesta 2009 who studied corporate governance and earnings management. Pdf corporate governance and earnings management kamau. This study contributes to the literature by investigating the relationship of firm. Corporate governance, earnings management, insurance. In contrast to the previous studies, this study is not merely to determine the effect of firm size, leverage,and corporate governance on earnings management practices partially but also to include the variable corporate governance cg is also thought to be able to moderatethe effect of firm size and leverage variables on earnings management. Properly structured corporate governance mechanisms are expected to reduce earnings management because they provide effective monitoring of management in the financial reporting process.
Corporate governance and earnings management an empirical evidence form pakistani listed companies 627 important thing is interrelationships between the various actors and mechanisms within the corporate governance mosaic. While numerous studies have investigated the effects of various corporate governance and. View enhanced pdf access article on wiley online library html view download pdf for offline viewing. The purpose of this study is to examine the relation between the. We examine whether internal governance affects the extent of real earnings management in u.
Earnings management and corporate governance in nigeria. This study examines whether auditorclient economic bonding and corporate governance moderate the adverse effects of principalprincipal agency problems on earnings quality in u. For example, the interactions among the audit committee, the external. This study examines the relationship between earnings management and two corporate governance mechanisms composition of board of directors and audit committee. Earnings management, employee stock ownership programs, corporate governance, agency problem. The effects of corporate governance mechanisms on earnings management of listed firms in nigeria vol.
Alrahahleh 3 abstract this paper investigates the effect of corporate governance quality on earnings management in. Pdf corporate governance can reduce or even eliminate the extent of earnings management. The going concern principle is the assumption that an entity will remain in business for the foreseeable. In this article, we explore the relationship between corporate social responsibility csr and earnings management em. Supporting an sec panel reports conclusion that audit committee members need financial sophistication, we show that the composition of a board in general and of an audit committee more specifically, is related to the likelihood that a firm will engage. We extend this literature by showing that institutional investment in the firm also may be effective in reducing earnings management. The effects of corporate governance mechanisms on earnings. Before delving into a discussion of the roles of the key players in corporate governance and how those roles are evolving, it is important to first set forth a working definition of the term corporate governance. This study supported the claim that corporate governance cg mechanisms are able to overcome earnings management em activities specifically from the. Board independence, earnings management and the moderating. Analysis of firm size, leverage, corporate governance on. This study investigates whether a firms corporate governance. Corporate governance cg is one of the instruments to overcome, or at least to minimize, earnings management.
Earnings management and corporate governance in family. Pdf corporate governance and earnings management an. Corporate governance quality and earnings management. The purpose of this paper is to examine the impact of corporate cg and islamic ig governance mechanisms on corporate earnings management em behaviour in oman. We examine the role of the board of directors, the audit committee, and the executive committee in preventing earnings management. The examination of the level of earnings management in a society like jordan, where the inclusion of the jordanian code of corporate governance is just started in january 2009, may therefore contribute to the existing knowledge of earnings management. Linking earnings management practices and corporate governance. Corporate governance and earnings management by sonda.
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