The Impact of Corporate Governance and Ownership Structure on Earnings Management Practices: Evidence from Listed Companies in Pakistan

The Lahore Journal of Economics 19 (2): pp. 27-70, 2014

44 Pages Posted: 21 Jan 2015

See all articles by Kamran Kamran

Kamran Kamran

Institute of Management Sciences - Peshawar

Attaullah Shah

Institute of Management Sciences

Date Written: 2014

Abstract

This study analyzes the impact of corporate governance and ownership structure on earnings management for a sample of 372 firms listed on the Karachi Stock Exchange over the period 2003–10. We estimate discretionary accruals using four well-known models: Jones (1991); Dechow, Sloan, and Sweeney (1995); Kasznik (1999); and Kothari, Leone, and Wasley (2005). The results indicate that discretionary accruals increase monotonically with the ownership percentage of a firm’s directors, their spouses, children, and other family members. This supports the view that managers who are more entrenched in a firm can more easily influence corporate decisions and accounting figures in a way that may serve their interests. This finding is consistent with prior research evidence on the role of dominant directors in expropriating external minority shareholders in Pakistan. Further, our results indicate that institutional investors play a significant role in constraining earnings management practices. We do not find any evidence that CEO duality, the size of the auditing firm, the number of members on the board of directors, and ownership concentration influence discretionary accruals. Among the control variables, we find that firms that are more profitable, are growing, or have higher leverage actively manage their earnings, while earnings management decreases with the age of the firm. The results are robust to several alternative specifications.

Suggested Citation

Kamran, Kamran and Shah, Attaullah, The Impact of Corporate Governance and Ownership Structure on Earnings Management Practices: Evidence from Listed Companies in Pakistan (2014). The Lahore Journal of Economics 19 (2): pp. 27-70, 2014 , Available at SSRN: https://ssrn.com/abstract=2552570

Kamran Kamran

Institute of Management Sciences - Peshawar ( email )

Sector E-5, Hayatabad, Phase VII
Hayatabad
Peshawar, KPK 25000
Pakistan

Attaullah Shah (Contact Author)

Institute of Management Sciences ( email )

1-A, Sector E / 5, Phase – VII, Hayatabad, Peshawa
Peshawar, NWFP 25000
Pakistan
+923459146115 (Phone)

HOME PAGE: http://www.opendoors.pk

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