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This study examines the empirical relation between a three‐way classification of corporate ownership structure and earnings management through the use of extraordinary item (EI) reporting. The EI reporting decisions examined are those made during 1960‐1966, a time period when US reporting standards allowed considerable management discretion with respect to both the classification of EIs and their placement in the financial statements (i.e., income. versus retained earnings statement). Overall, the results provide strong support for income‐increasing behavior by non‐owner managers. Importantly, the results also suggest that the three‐way ownership classification scheme used in this study is superior to the dichotomous owner‐controlled/managercontrolled classification typically used in accounting studies.

In this study we replicate and extend an agency-transaction cost model of dividend payout previously hypothesized and supported in the literature. We find no statistical difference between the estimated regression model obtained for the original seven-year sample period, 1974-80, and that obtained for our seven-year period, 1981-87. The latter period is characterized by significantly lower inflation, stronger economic growth, and lower taxes. The intertemporal stability of the model suggeststhat it is useful for predicting dividend payout at the individual firm level.