Abstract

http://ssrn.com/abstract=2162277
 


 



Internal Governance and Real Earnings Management


Qiang Cheng


Singapore Management University

Jimmy Lee


Singapore Management University - School of Accountancy

Terry J. Shevlin


University of California-Irvine

October 15, 2012

Singapore Management University School of Accountancy Research Paper No. 5

Abstract:     
In this paper, we examine whether key subordinate executives have the incentives and ability to restrain the extent of real earnings management. Using the number of years to retirement to capture key subordinate executives’ incentives and using their relative to CEO compensation to capture their influence within the firm, we find that the extent of real earnings management decreases with key subordinate executives’ horizon and influence. In cross-sectional analyses, we find that the impact of internal governance is less important when the CEO is less myopic, is less effective when the key subordinate executives are promoted by the CEO, and is more important for firms with more complex operations where key subordinate executives’ contribution is higher, and is enhanced by the effectiveness of external governance. This paper contributes to the literature by examining how internal governance affects the extent of real earnings management. This examination is important as it sheds light on how the members of the management team work together and shape financial reporting quality.

Number of Pages in PDF File: 60

Keywords: internal governance, real earnings management

JEL Classification: G32, M40

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Date posted: October 16, 2012 ; Last revised: July 22, 2013

Suggested Citation

Cheng, Qiang and Lee, Jimmy and Shevlin, Terry J., Internal Governance and Real Earnings Management (October 15, 2012). Singapore Management University School of Accountancy Research Paper No. 5. Available at SSRN: http://ssrn.com/abstract=2162277 or http://dx.doi.org/10.2139/ssrn.2162277

Contact Information

Qiang Cheng (Contact Author)
Singapore Management University ( email )
60 Stamford Road
Singapore, 178900
Singapore

Jimmy Lee
Singapore Management University - School of Accountancy ( email )
60 Stamford Road
Singapore 178900
Singapore
(65) 6808 5234 (Phone)

Terry J. Shevlin
University of California-Irvine ( email )
Paul Merage School of Business
Irvine, CA 92697-3125
United States
206-550-9891 (Phone)
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