Ownership structure and real earnings management: evidence from an emerging market

Abstract

PurposeThis study aims to investigate the monitoring role of ownership structure (OWS) on real earnings management (REM) practices; previous studies primarily examined the effect of OWS on accrual-based earnings management.Design/methodology/approachThe sample of this study is 490 companies listed on the Malaysian Stock Exchange during the period 2013–2016 (1,960 company-year observations). The regression of a feasible generalized least square was used for data analysis. The authors use three regression models ordinary least squares, panel-corrected standard errors and Driscoll–Kraay standard errors to corroborate the findings and also examine alternative REM measures.FindingsAnalysis of the data shows that family, foreign and institutional ownership has a positive link with the quality of financial reporting and, to a large extent, is capable of alleviating REM. The findings also indicate that some form of OWS significantly affects REM, corroborating existing theories on corporate governance (CG) and the perspectives of practitioners.Practical implicationsThe evidence concerns the significant role played by the OWS in reducing REM activities. The findings are useful in support of regulatory activities, particularly in the design of policies to regulate the OWS. The results may also provide useful insights to inform other policymakers, investors, shareholders and researchers about the active role of family, foreign and institutional investors in monitoring Malaysia's public listed companies (PLCs) to strengthen CG practices. This also leads to less REM and enhances the quality of financial reporting.Originality/valueTo the authors' knowledge, this work is pioneering research from a developing country, specifically from Malaysia, to investigate the manner in which all possible OWSs influence REM. More importantly, the study recommends that regulators and researchers do not envisage OWS as a holistic phenomenon.

Institutional investors, political connections and stock recommendations from sell-side analysts: the case of Malaysia

“…(2014). The average (median) debt-to-asset ratio is 19% (17%), which concurs with Zainudin and Khaw (2021), Al-Duais et al. (2022), and AlQadasi and Abidin (2018), who report it to be between 18 and 19%.…”

“…The mean (median) of company size is RM2.2 (RM2.8) billion ranges from RM8.6 million to RM77.6 billion comparable to the mean value of RM2.4 billion reported by How et al (2014). The average (median) debt-to-asset ratio is 19% (17%), which concurs with Zainudin and Khaw (2021), Al-Duais et al (2022), andAlQadasi andAbidin (2018), who report it to be between 18 and 19%. BTM has a mean (median) of 1.23 (1.02) and a range of 0.01-7.37.…”

“…In particular, a dummy variable of 1 is given if total institutional investors' ownership in the firm is more than 5%, 10%, 15%, 20 and 30% and 0, otherwise (Abdul Wahab et al. , 2018; Al-Duais et al. , 2022; Chung et al.…”

CEO Characteristics, Family Ownership and Corporate Social Responsibility Reporting: The Case of Saudi Arabia

“…We also controlled for institutional investors ownership (TO_IO), since TO_IO significantly affects CSR disclosure [93]. TO_IO is measured as shares owned by institutional investors divided by the outstanding number of shares [94,95]. We further controlled for several financial variables at the firm level.…”

Does Real Earnings Management changes according to Industry? Evidence from Egypt

“…Ge and Kim, 2014;Tabassum et al,2015;Cheng et al,2016), institutional ownership stability(e.g. Sakaki et al,2017;AL-Duais et al,2021;Siraji,2021), CFO and CEO reimbursement (e.g. Zhou et al,2018), earnings quality (e.g.…”