Do Strong Shareholder Rights Mitigate Earnings Management?

34 Pages Posted: 7 Apr 2013

See all articles by Marshall A. Geiger

Marshall A. Geiger

University of Richmond

David S. North

University of Richmond - E. Claiborne Robins School of Business

Date Written: April 5, 2013

Abstract

In this paper we examine the relationship between the strength of a firm’s shareholders rights, as part of their overall corporate governance structure, and the discretionary financial reporting choices made by the firm’s financial executives. Specifically, we examine the strength of shareholders rights and the reported levels of discretionary accounting accruals and the use of special reporting items on the income statement. We posit and find that in settings where shareholder rights are strong, after controlling for other reporting related factors, managers report lower levels of discretionary accruals and special reporting items, and use special reporting items significantly less frequently compared to firms with weak shareholder rights. Our findings suggest that having strong shareholder rights imposes additional monitoring on the firm’s financial reporting executives, leading to reduced earnings management attempts by financial executives and higher quality financial reporting.

Keywords: Corporate governance, Earnings management, Discretionary accruals

JEL Classification: G32, M41

Suggested Citation

Geiger, Marshall A. and North, David S., Do Strong Shareholder Rights Mitigate Earnings Management? (April 5, 2013). Journal of Accounting, Ethics and Public Policy, Vol. 14 No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2245683

Marshall A. Geiger (Contact Author)

University of Richmond ( email )

28 Westhampton Way
Richmond, VA 23173
United States
804-287-1923 (Phone)

David S. North

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
242
Abstract Views
1,797
rank
157,980
PlumX Metrics