How do market power and industry competition influence the effect of corporate governance on earnings management?

Tang, Hui-Wen Vivian; Chen, Anlin

doi:10.1016/j.qref.2020.02.001

Cited by 28 publications

(15 citation statements)

References 49 publications

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“…High levels of competition, in addition to the internal targets set by the company, may cause business uncertainty, fomenting moral hazard which can encourage the management to make inefficient investments. Furthermore, earlier studies have verified the significant impact of competition levels on corporate governance (Giroud and Mueller, 2011; Tang and Chen, 2020). In light of these findings, the current study considers the level of competition in examining the effect of corporate governance on investment efficiency.…”

Section: Introductionmentioning

confidence: 82%

“…Consequently, the management can be forced to increase the bottom line and to be more creative to survive (Gokalp et al , 2017). Such pressure can give rise to opportunistic behaviour in firm management (Tang and Chen, 2020).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…In line with Gokalp et al (2017) and Salehi et al(2020), the present study assumes that the pressure caused by high rates of competition leads to a greater frequency of agency conflicts. This assumption is based on the argument that, when market competition is high, the risk causes uncertainty in the generation of income and profit, thus making it difficult to JFRA 20,2 achieve financial targets (Sulistiawan and Rudiawarni, 2019;Tang and Chen, 2020). Consequently, the management can be forced to increase the bottom line and to be more creative to survive (Gokalp et al, 2017).…”

Section: Impact Of Industry Competitionmentioning

confidence: 99%

“…Pressure on the management to outperform their competitors can likewise exacerbate agency conflicts (Gokalp et al , 2017; Salehi et al , 2020), impelling the management to behave opportunistically in managing the company (Jacoby et al , 2019; Tang and Chen, 2020). High levels of competition, in addition to the internal targets set by the company, may cause business uncertainty, fomenting moral hazard which can encourage the management to make inefficient investments.…”

Section: Introductionmentioning

confidence: 99%

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Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition

Bimo

Silalahi

Kusumadewi

2021

JFRA

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Purpose This study aims to analyse the effect of corporate governance on investment efficiency and the moderating impact of industry competition on the relationship between corporate governance and investment efficiency. Design/methodology/approach The research sample includes a total of 36 publicly listed companies assessed by the Indonesian Institute for Corporate Directorship from 2012 to 2018. Testing is performed on full sample and overinvestment and underinvestment subsamples. Additional testing is further carried out using the generalized method of moments to address endogeneity problems and a robustness test is performed to assess the estimated investment efficiency. Findings Corporate governance can increase investment efficiency and the effectiveness of corporate governance is found to drop when the level of industry competition is higher. Practical implications The results of the present study corroborate the suggestion that companies need to implement corporate governance mechanisms. Furthermore, designing a corporate governance mechanism requires the scrutiny of the external environment, including industry competition. Originality/value The present study adds the profitability factor in the calculation of investment efficiency levels. This study also considers external factors that can influence the effectiveness of corporate governance in determining investment efficiency.

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Section: Introductionmentioning

confidence: 82%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Impact Of Industry Competitionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition

Bimo

Silalahi

Kusumadewi

2021

JFRA

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“…Plus, research shows that even in normal times, the propensity to manipulate earnings differs among industries. Numerous studies reveal that entities operating in industries experiencing profound market competition are more apt to partake in accrual-based earnings management than are those operating in industries with less competition (e.g., Datta et al, 2013;Tang and Chen, 2020;Zhang et al, 2017). The findings in the present study might have been different if industry effects had been examined.…”

Section: Limitationsmentioning

confidence: 51%

Testing for Earnings Management in the U.S. Amid the COVID-19 Pandemic

2021

JABE

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Some forms of earnings management largely disappeared after SOX's implementation, including cosmetic earnings management and the upward manipulation of income to ensure that reported EPS is rounded up a penny rather than down a cent. Yet, research shows that the incidence of accrual-based earnings management increases during an economic downturn. This raises a question of whether these two types of earnings management might have reappeared in the U.S. during the unique, pandemic-driven recession of 2020. The current study tests this issue and finds no compelling evidence that either of these two easilyachieved forms of earnings management occurred overall in 2020.

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Market structure, ESG performance, and corporate efficiency: Insights from Brazilian publicly traded companies

Moskovics,

Wanke,

Tan

et al. 2023

Bus Strat Env

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Using a sample of Brazilian listed companies, our study investigates the directional cause–effect relationship between market structure, ESG performance, and firm efficiency under a Stochastic Structural Relationship Programming (SSRP) model. Our empirical evidence is threefold. First, our findings indicate that firms with better environmental performance are more efficient, whereas lower ESG performance and poorer corporate governance practices are associated with a higher level of efficiency. Second, our study suggests that market structure measures (i.e., competition, concentration, and market power) have heterogeneous impacts on various ESG indexes. Specifically, higher market competition is associated with a lower concentration, better ESG performance and environmental performance, but worse corporate governance performance, although market power can only enhance the environmental and governance performance of firms. Third, the market structure proxies employed in this study are significantly attributed to firm efficiency. Our findings provide practical implications for various stakeholders and suggest avenues for future studies that can build on our evidence.

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How do market power and industry competition influence the effect of corporate governance on earnings management?

Cited by 28 publications

References 49 publications

Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition

Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition

Testing for Earnings Management in the U.S. Amid the COVID-19 Pandemic

Market structure, ESG performance, and corporate efficiency: Insights from Brazilian publicly traded companies

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