Organizational Structure and Earnings Management

Abstract

In this .stud.v, M Y ident(fj1 (I ,f~~ndunicntul uttrihute oj the organizational structure of' the j i m~i i e intensity of' interdivisional trunsuctiorz relatedness unu' ~~o n i p l e n i r r i t u i~i t~~~~h i c~k contributes to earnings management. We drmv jkoni the theorcticul ccotiomics literature thut demonstrates thut intrqfirni cdliisiori is morc likc1.y in hirrurchicul und cwnplex organizationul striic~irrc. We p s i t thut intrufi:rm cwllusion toward a c'ommori oi-~ycirii~mtion~I goal is more prewlent in highly reluted organizational .str~uc~turc hccaiisc the economic wdfurc of economic agents is highly intri.dcpPricIcrit. Consistent with our hypothesis, we find that eurnings nianagmment i.r positiivly us.soc%~tcd Mith orgunizational relutedness. Wc also jind that, ,fiw ,firms with high organizutional relatedness, those Mith a high proportion of' outside directors und high institutional equity oMwo:ship h u \~) 1 r . s~ pronounced curnings munugement. Collectiwl.y, our result sug~yrsts an interaction hctll'een corporate governunce structure und or~ycirii3NtioriNI i-clatednc,ss in uflkcting eurnings quulity. agement." .lournu/ of Awounting Re.scwr.c~lr 34( I ): 45-05.

Debt, diversification and earnings management

“…Different relations among different directional earnings management have been found in the mentioned studies. In Lee et al (2007), size has a negative relation with income-increasing DAC for the whole sample and for the sub-sample of DAC > 0, but a positive relation with the sub-sample of DAC < 0. On the other hand, for Othman and Zhegal (2006), size shows a positive relation with income-increasing DAC for the total sample and for the sub-sample of DAC < 0, whereas it has a negative relation with absolute DAC and for the sub-sample of DAC > 0.…”

“…Othman and Zhegal (2006) and Lee et al (2007) are exceptions. Different relations among different directional earnings management have been found in the mentioned studies.…”

“…Some studies have documented a negative and significant relation between debt and income-increasing earnings management (Chung et al, 2005;Lee et al, 2007;Zhong et al, 2007). This suggests that companies with high debt levels face increased monitoring by bankers and creditors, thus inhibiting the use of positive discretionary accounting accruals.…”

“…Under the agency theory, larger firms present more information asymmetries, and managers can use this advantage to exacerbate earnings management for their own benefit (Mohd and Ahmed, 2005;Chung et al, 2005;Othman and Zhegal, 2006). On the other hand, large firms may tend to decrease profits for the purpose of reducing political costs (Watts and Zimmerman, 1986;Young, 1999;Lee et al, 2007;Zhong et al, 2007). Others, such as Becker et al (1998) and Jelinek (2007), do not find any relation between income-increasing earnings management and size.…”

The effect of the mandatory adoption of IAS/IFRS on earnings management: Empirical evidence from South Africa

“…b) Leverage Debt may also have an ambiguous effect on earnings management. Indeed, some empirical research documents that monitoring by the creditors may allow for better governance and thus contribute to the reduction of managers' flexibility when it comes to managing earnings (Lee et al, 2007). In addition, Jiang et al (2008); Maria and Alves (2011) find a negative relationship between leverage and earnings management.…”