Esops and Earnings Management: An Empirical Note

19 Pages Posted: 10 Nov 2006

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Date Written: November 10, 2006

Abstract

This study seeks to ascertain the impact of employee stock ownership plans (ESOPs) on earnings management. The empirical evidence shows that firms with larger ESOP ownership exhibit a lower degree of earnings management. I suggest that this is the case because ESOPs motivate employees to monitor management, hence, reducing managerial opportunism in the form of earnings management. Besides, ESOPs may act as a takeover defense and help managers take the long-term view of the firm, thus, lessening the motivation for short-term transient earnings distortion. Finally, there is evidence that ESOP ownership alleviates earnings management only in firms where outside blockholders are present.

Keywords: earnings management, ESOPs, block ownership, ownership structure

JEL Classification: G30, G32, M43, M41

Suggested Citation

Jiraporn, Pornsit, Esops and Earnings Management: An Empirical Note (November 10, 2006). Available at SSRN: https://ssrn.com/abstract=944121 or http://dx.doi.org/10.2139/ssrn.944121

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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