Are Insiders Equal? Evidence from Earnings Management in Closely Held East Asian Firms

64 Pages Posted: 26 Jul 2017 Last revised: 27 Nov 2018

See all articles by Najah Attig

Najah Attig

Saint Mary's University - Department of Finance & Management Science

Ruiyuan (Ryan) Chen

West Virginia University

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Date Written: November 2018

Abstract

In analyzing newly collected data on the ultimate ownership structure of publicly traded firms in nine East Asian economies, we contribute to international accounting research by providing evidence on earnings management in insider-controlled firms in this region. We find that family-controlled firms engage in less (more) accrual-based (real) earnings management than other insider-controlled firms. Our analysis suggests that controlling families, unlike other types of ultimate owners, tend to substitute real earnings management for accrual-based earnings management. To help empirically clarify the role that two incentives (entrenchment versus signaling) play in driving the substitution between real and accruals-based earnings management, we examine their valuation impact and find that both types negatively affect the future valuation of family firms. In another set of results consistent with expectations, we document that country-level investor protection and firm external financing demand shape the practice of earnings management in family-controlled firms.

Keywords: Family Conglomerates, Earnings Management, Comparative Accounting Systems and Practice, Real Activities Manipulation, Corporate Governance, East Asia

JEL Classification: G30, G32

Suggested Citation

Attig, Najah and Chen, Ruiyuan and El Ghoul, Sadok and Guedhami, Omrane and Kwok, Chuck C.Y. and Pittman, Jeffrey A., Are Insiders Equal? Evidence from Earnings Management in Closely Held East Asian Firms (November 2018). Available at SSRN: https://ssrn.com/abstract=3007494 or http://dx.doi.org/10.2139/ssrn.3007494

Najah Attig

Saint Mary's University - Department of Finance & Management Science ( email )

Halifax, Nova Scotia B3H 3C3
Canada
902-491-8679 (Phone)

Ruiyuan Chen

West Virginia University ( email )

1601 University Avenue
Morgantown, WV 26505
United States

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-3606 (Phone)
803-777-3609 (Fax)

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

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