Can Governance Mitigate Real Earnings Management?

50 Pages Posted: 26 Apr 2013

See all articles by Mahfuja Malik

Mahfuja Malik

Boston University; Sacred Heart University

Date Written: December 25, 2011

Abstract

This study investigates whether corporate governance can mitigate real earnings management. In recent years, firms have been switching from accrual based to real earnings management and the incidence of real earnings management is also increasing. The role of corporate governance to reduce accrual based earnings management is well documented in the literature, however there is no firm evidence regarding the role of corporate governance to constrain real earnings management. To fill the gap in the literature, I examine whether corporate governance can play any role to reduce real earnings management. I find evidence that firms may engage in real earnings management either to avoid reporting losses or to meet analysts’ forecasts. Cross-sectional analysis reveals that these activities are less prevalent for the firms that have larger institutional investors. However, I fail to find any evidence regarding the role of board to prevent real earnings management.

Keywords: Corporate Governance, Real Earnings Management, Board of directors, Institutional Investors

JEL Classification: G30, M41

Suggested Citation

Malik, Mahfuja, Can Governance Mitigate Real Earnings Management? (December 25, 2011). Available at SSRN: https://ssrn.com/abstract=2256564 or http://dx.doi.org/10.2139/ssrn.2256564

Mahfuja Malik (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Sacred Heart University ( email )

5151 Park Ave
Fairfield, CT 06432
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
271
Abstract Views
986
rank
110,880
PlumX Metrics