Earnings Quality in Privatized Firms: International Evidence on the Role of State and Private Owners

44 Pages Posted: 1 Jun 2012

See all articles by Hamdi Ben‐Nasr

Hamdi Ben‐Nasr

King Saud University - College of Business Administration

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Jean-Claude Cosset

HEC Montreal

Date Written: May 31, 2012

Abstract

We use a unique dataset of 233 privatized firms from 38 countries between 1985 and 2008 to investigate the relation between shareholder identity and earnings quality. We find strong and robust evidence that (residual) state ownership is associated with lower earnings quality. More specifically, we find that state ownership is associated with higher abnormal accruals and that the adverse effects of state ownership on earnings quality are less pronounced in countries with strong investor protection. Furthermore, we report evidence suggesting that private ownership (i.e., by institutional investors and foreigners) helps to mitigate the adverse effects of state ownership. Finally, we find that government-controlled firms with lower earnings quality are penalized with a higher cost of equity.

Keywords: Ownership Structure, Corporate Governance, Earnings Quality, Abnormal Accruals, Privatization

JEL Classification: G32, G34, M41

Suggested Citation

Ben-Nasr, Hamdi and Boubakri, Narjess and Cosset, Jean-Claude, Earnings Quality in Privatized Firms: International Evidence on the Role of State and Private Owners (May 31, 2012). Available at SSRN: https://ssrn.com/abstract=2071254 or http://dx.doi.org/10.2139/ssrn.2071254

Hamdi Ben-Nasr

King Saud University - College of Business Administration ( email )

B.P. 2459
Riyad, 11451
Saudi Arabia

Narjess Boubakri

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

HOME PAGE: http://www.aus.edu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Jean-Claude Cosset (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6872 (Phone)
514-340-6987 (Fax)

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