Delaware Incorporation and Earnings Management: An Empirical Analysis

34 Pages Posted: 11 Dec 2006

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

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

Kimberly C. Gleason

American University of Sharjah

Date Written: December 2006

Abstract

Motivated by agency theory, this study examines whether the extent of earnings management significantly differs in firms incorporated in Delaware versus those incorporated elsewhere in the U.S. Delaware corporate law has been argued to affect agency costs. To the extent that shareholders make poor investment decisions based on managed accounting numbers, earnings management can be regarded as an agency cost. The evidence indicates that earnings management occurs to a lesser extent in Delaware firms. In addition, Delaware incorporation combined with a predominance of outside independent directors on the board, further constrains earnings management. Finally, the results suggest that earnings management is not diminished in Delaware firms that are controlled by founding families.

Keywords: Delaware, incorporation, earnings management, agency theory, agency costs

Suggested Citation

Jiraporn, Pornsit and Gleason, Kimberly C., Delaware Incorporation and Earnings Management: An Empirical Analysis (December 2006). Available at SSRN: https://ssrn.com/abstract=950692 or http://dx.doi.org/10.2139/ssrn.950692

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

Kimberly C. Gleason

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

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