Ownership Structure and Earnings Quality Pre- and  Post-IFRS: Does Investor Protection Matter?

Alhadi, Saleh Abd; Senik, Rosmila; Johari, Jalila; Nahar, Hairul Suhaimi

doi:10.22452/ajba.vol13no1.4

Cited by 7 publications

(13 citation statements)

References 65 publications

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“…The system GMM estimator improves efficiency by including lags of instrumented variables into the regression model and provides unbiased estimates, despite the presence of heterogeneity and endogeneity (Roodman, 2009). As with previous studies (see Alhadi et al, 2020;Garfatta & Zorgati, 2021;Wellalage & Locke, 2011), system GMM is employed as the baseline estimate in these studies. Therefore, this study sheds light on the endogenous and dynamic nature of the state ownership and liquidity relation using system GMM estimation.…”

Section: Model Specificationmentioning

confidence: 99%

Stock Liquidity and State Ownership: Evidence from the Banking Industry of Selected Asian Emerging Markets

Lee

Hooy

2023

AJBA

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Manuscript type: Research paper Research aims: Liquidity creation is deemed important in the emerging markets banking industry. It turns out to be more challenging when subject to ownership issues, particularly state ownership. The government possesses substantial ownership in many large banks in Asian emerging markets and has a significant effect on firms’ stock liquidity through trading activity. Hence, state ownership is a key determinant of stock liquidity. This paper investigates the effect of state ownership on stock liquidity in Asian emerging markets. Design/Methodology/Approach: Using the GMM panel regression model, this study examines a sample of 209 banks in Asian emerging markets including China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan, and Thailand from 2009 to 2018. For the robustness test, an alternative liquidity measure is conducted. Research findings: Results show that state ownership is positively related to stock liquidity, implying that the participation of the government provides investors’ confidence and perceives these stocks as value-enhancing stocks. However, this positive effect on stock liquidity turns out to be negative when the state ownership surpassed a certain threshold. Thus, this paper finds a non-linear inverse U-shaped relationship between state ownership and stock liquidity. Further analysis also shows that large banks tend to enjoy greater liquidity compared to smaller banks. Theoretical contribution/Originality: Unlike past studies that focus on other ownership structures, this study focuses on state ownership of large banks in emerging markets. This study contributes by collectively addressing the impact of state ownership on stock liquidity, with a focus on the banking industry in the Asian emerging markets context. Practitioner/Policy implications: The findings of this study can benefit investors, policymakers, and other stakeholders to better understand the impact of state ownership on stock liquidity. There are various implications in terms of investment decisions and corporate governance policies pertaining to corporate ownership structure. Research limitation: Future studies may consider conducting sub-samples using a different threshold of state ownership. Besides, this study focuses on the banking sector and hence the results may not be generalised.

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Section: Model Specificationmentioning

confidence: 99%

Stock Liquidity and State Ownership: Evidence from the Banking Industry of Selected Asian Emerging Markets

Lee

Hooy

2023

AJBA

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“…Several studies use the entrenchment effect hypothesis as a basis of their research. For example, Alhadi et al (2020) argued that majority shareholders in companies with concentrated ownership were likely to expropriate minority shareholders. In addition, they argued that investor protection is important in countries with highly concentrated ownership because it can reduce the entrenchment effect (Hasan et al, 2014) and improve monitoring mechanisms (Ben Naceur et al, 2007).…”

Section: Entrenchment Effect Hypothesismentioning

confidence: 99%

“…According to prior research, factors that influence earnings quality depend on country-level characteristics. One of the important characteristics that significantly influence earnings quality is ownership structure (Abdullah & Ismail, 2016;Alhadi et al, 2020;Arthur et al, 2019;Fan et al, 2023;Ghaleb et al, 2020;Tessema et al, 2018). These studies provide mixed results about the relationship between ownership concentration and earnings quality.…”

Section: Introductionmentioning

confidence: 99%

“…However, Alhadi et al (2020) argued that majority shareholders in companies with concentrated ownership were likely to expropriate minority shareholders. The argument is based on the entrenchment effect hypothesis, stating that highly concentrated ownership firms had incentives to maximize their benefit, therefore increasing the possibility of earnings management and reducing earnings quality.…”

Section: Introductionmentioning

confidence: 99%

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Relationship Between Ownership Concentration, Firm Size, and Earnings Quality in Indonesian Companies

Kristiawan

2024

EJBMR

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This study aimed to investigate the influence of ownership concentration and firm size on earnings quality in Indonesian companies. Research about the influence of ownership concentration and firm size on earnings quality still provides mixed results. Therefore, it became important to conduct research about it, especially in the context of Indonesian companies. This study used the alignment effect hypothesis as a basis for hypothesis development. The sample of this study consists of 92 Indonesian companies from 2013–2018, with a total of 522 observations. The data analysis technique is multiple regression analysis. The result of this study showed that ownership concentration had a positive influence on earnings quality. In contrast, firm size had no influence on earnings quality. In conclusion, the result of this study supported the alignment effect hypothesis, stating that the interest of the majority shareholder is aligned with that of the minority shareholder, therefore improving earnings quality.

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“…Many financial and investment decisions depend on earnings quality. The higher the quality of earnings, the higher the confidence of investors (Abd Alhadi et al 2020).…”

Section: Introductionmentioning

confidence: 99%

The Moderating Effect of Ownership Structure on the Relationship between Related Party Transactions and Earnings Quality: Evidence from Saudi Arabia

Alsultan,

Hussainey

2024

IJFS

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This paper seeks to investigate how earnings quality is affected by related party transactions (RPTs). The research also examines the impact of ownership structure as a moderating variable on this relationship. Panel data with the firm fixed effects model are utilized in the paper. A sample of 91 non-financial companies listed on the Saudi Stock Exchange between 2018 and 2022 were included, resulting in 429 observations of company performance over that time period. This paper finds that there is a negative association between RPTs and earnings quality. Furthermore, the study found that the adverse effect of RPTs on earnings quality is intensified when there is managerial ownership and institutional ownership as moderating variables. The study’s conclusions are robust and reliable, as the sensitivity analysis results reinforce those of the basic analysis. To the authors’ knowledge, there is relatively little available evidence on the connection between RPTs and their correlation with earnings quality, particularly in the context of ownership structure acting as a moderating variable. Moreover, the study’s findings hold important implications for enhancing earnings quality in developing economies. To the authors’ knowledge, no studies have been conducted in Saudi Arabia thus far to investigate the impact of ownership concentration, institutional ownership, managerial ownership, foreign ownership, and state ownership on the association between RPTs and earnings quality. Therefore, this paper expands the literature by modeling how the interaction between ownership structure and related party transactions may influence earnings quality. In this way, the authors contribute to the body of knowledge by unveiling a more robust control mechanism, particularly in developing economies with ineffective markets for corporate control.

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Ownership Structure and Earnings Quality Pre- and Post-IFRS: Does Investor Protection Matter?

Cited by 7 publications

References 65 publications

Stock Liquidity and State Ownership: Evidence from the Banking Industry of Selected Asian Emerging Markets

Stock Liquidity and State Ownership: Evidence from the Banking Industry of Selected Asian Emerging Markets

Relationship Between Ownership Concentration, Firm Size, and Earnings Quality in Indonesian Companies

The Moderating Effect of Ownership Structure on the Relationship between Related Party Transactions and Earnings Quality: Evidence from Saudi Arabia

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