Ownership Concentration, IFRS Adoption and Earnings Quality: Evidence from an Emerging Market

Abstract

We investigate the impact of corporate governance characteristics, and IFRS on earnings quality in Borsa Istanbul (BIST). Our contribution stems from the fact that we study moderating effects of mandatory IFRS adoption on the relationship between ownership concentration and earnings quality in a setting characterized by low minority ownership rights protection and high ownership concentration in the form of family-owned pyramids, in a code law country with lax rules and weak enforcement. We use a unique data set that is hand collected. We find strong first time evidence for low persistence of earnings and high earnings management and that ownership concentration impedes earnings quality while foreign ownership enhances it. Mandatory IFRS adoption has had a strong positive effect on earnings persistence and a weaker effect on earnings management. However, the impact of IFRS in reducing the negative impact of only family type ownership concentration is noteworthy.

Keywords: Corporate governance, IFRS, earnings persistence, earnings management, ownership concentration, emerging markets

JEL Classification: G34, G38, M41, M48