Earnings Management and Internal Control Mechanisms: Evidence from Chilean Firms

NEW DEVELOPMENTS IN BANKING AND FINANCE, L.W. Cornwall, ed., Nova Science Publishers, Hauppauge, 2007

27 Pages Posted: 16 Nov 2005

See all articles by Mauricio Jara-Bertin

Mauricio Jara-Bertin

University of Chile - Business School

Félix J. López-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Abstract

We analyze the impact of some internal control mechanisms - ownership structure, capital structure and growth opportunities - on earnings management in Chilean firms throughout 1991-2001. Our results are interesting due to the specific characteristics of the corporate system in Chile where investor protection is weak and banks play a prominent role. We find that ownership concentration has a non-linear relation with earnings management, consistent with both the control of directors by main shareholders and the idea of expropriation of minority shareholders by large controlling shareholders. Financial leverage and public debt gives managers incentives to accounting discretion whereas bank debt plays an active role in corporate governance as a control mechanism. Our results also show that earnings are not managed to signal growth opportunities.

Keywords: Accruals, capital structure, earnings management, ownership structure

JEL Classification: G32, M41, M43

Suggested Citation

Jara-Bertin, Mauricio Alejandro and Lopez-Iturriaga, Felix Javier, Earnings Management and Internal Control Mechanisms: Evidence from Chilean Firms. NEW DEVELOPMENTS IN BANKING AND FINANCE, L.W. Cornwall, ed., Nova Science Publishers, Hauppauge, 2007. Available at SSRN: https://ssrn.com/abstract=849104

Mauricio Alejandro Jara-Bertin

University of Chile - Business School ( email )

Diagonal Paraguay 257
Santiago, Chile
Chile

Felix Javier Lopez-Iturriaga (Contact Author)

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

HOME PAGE: http://www2.eco.uva.es/flopez

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

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