Institutional investors and real earnings management: A meta-analysis

Kabacinski, Bartosz; Mizerka, Jacek; Strozynska-Szajek, Agnieszka

doi:10.18559/ebr.2022.2.4

Cited by 2 publications

(2 citation statements)

References 42 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The result, however, might be of interest to legislators, as the positive relationship between family ownership and REM means that this type of ownership does not discourage companies from REM, and legislators should not expect it to do so. In another study, performed by Kabaciński et al (2022), the authors found that institutional investors in general are not significantly related to REM, but conditional dependence exists. Corporate policymakers and investors should be aware that both types of ownershipfamily and institutional -do not constrain REM practices, and they should adjust their expectations accordingly.…”

Section: Discussionmentioning

confidence: 93%

Real earnings management, CEO experience, family ownership, and external audits: A meta-analysis

Nowicki

2024

10.14746/rpeis

View full text Add to dashboard Cite

This article analyses the relationship between real earnings management (REM) and corporate governance variables, including family ownership, external audit quality, and CEO experience. The studies analysed were published between 2006 and 2021. The Sarbanes-Oxley Act of 2002 and the implementation of international financial reporting standards have led companies to reduce the use of accrual earnings management (AEM), and instead adopt real earnings management. However, many authors claim that using REM might harm a company’s long-term wellbeing, which accentuates the need to study the determinants of REM. The variables analysed in this paper are extensively covered in the literature, however, there is still ambiguity regarding their relationship with REM due to conflicting findings; some studies indicate a positive relationship, while others show a negative one. To resolve this ambiguity, meta-regression analysis is employed. The results indicate a positive relationship between family ownership and REM. This highlights the need to explore other forms of ownership to determine the most effective ownership structure that does not increase REM. This is of interest to legislators. The results provide no evidence to support the statistical or economic significance of CEO experience and external audit in relation to REM.

show abstract

Section: Discussionmentioning

confidence: 93%

Real earnings management, CEO experience, family ownership, and external audits: A meta-analysis

Nowicki

2024

10.14746/rpeis

View full text Add to dashboard Cite

show abstract

“…Earnings management relates to many areas of corporate finance management, including window-dressing around equity or debt issues, financial distress, or its many interconnections with corporate governance (Campa, 2019;Friedlan, 1994;Grabiński & Wójtowicz, 2022;Kabaciński et al, 2022;Lizińska & Czapiewski, 2023;Piosik & Genge, 2020). One of these is cash holdings management, which is an important part of corporate financial strategy.…”

Section: Introductionmentioning

confidence: 99%

Corporate Cash Holdings and Earnings Quality – Evidence from the Stock Market in Poland

Gryko,

Czapiewski,

Lizińska

2024

View full text Add to dashboard Cite

Theoretical background: High levels of cash holdings allow companies to be financially flexible. Cash holders can react to business opportunities at once, and avoid dependence on external financing. Having cash reserves acts as a protective cushion from possible business shocks. However, cash holdings, like other asset items, incur cost. The direct costs mostly relate to obtaining and servicing of financing. Excessive cash may also induce the agency problem of free cash flow. Information asymmetry, among other factors, influences cost of capital and the efficiency of investor monitoring. Earnings management strategies are related to the informativeness of financial reports, as they can either support or disturb the assessment of company risk and performance. Hence, companies search for tailor-made strategies that usefully trade-off the benefits and costs of cash reserves and earnings quality. Purpose of the article: Earnings management occurs either via intervention in the reporting process using accruals, or changing the structure or the timing of real business transactions. This study aims to assess the differences in accrual and real earnings management strategies between firms with relatively high and low cash reserves. Based on a sample of non-financial companies listed on the Warsaw Stock Exchange in Poland, this research provides evidence on the relationship between the level of cash holdings and earnings quality. Research methods: Earnings management is proxied with annual cross sectional regressions estimated in non-financial GICS sectors. The Jones and the modified Jones model allow to estimate expected accruals. Using the Roychowdhury approach, normal cash flow from operations, normal production costs, and normal discretionary expenses are estimated. These normal levels are compared with their actual value to proxy for accrual- and real-earnings management. Next, each company was assigned to one of two groups, depending on the level of cash holdings relative to the annual industry medians. Parametric and non-parametric tests were used to test statistical significance. Main findings: The empirical results show statistically significant differences in accrual and real earnings management between companies with relatively high and low cash reserves. Cash holders seem to be more likely to manage earnings via shifting accruals between periods. However, there is no evidence that any of the groups boosted earnings more. Unsigned earnings management proxies suggest lower informativeness of financial reports for companies with cash buffers. Cash holdings were positively related to activities aimed at reducing fixed costs per unit and savings on discretionary expenses. Summing up, this research shows that companies with greater information asymmetry related to poor earnings quality preferred to hold larger cash reserves.

show abstract

Institutional investors and real earnings management: A meta-analysis

Cited by 2 publications

References 42 publications

Real earnings management, CEO experience, family ownership, and external audits: A meta-analysis

Real earnings management, CEO experience, family ownership, and external audits: A meta-analysis

Corporate Cash Holdings and Earnings Quality – Evidence from the Stock Market in Poland

Contact Info

Product

Resources

About