The effect of ownership composition on earnings management: evidence for the Mexican stock exchange

Abstract

Purpose This paper aims to examine the relationship between different types of shareholders that command share ownership, family, institutions or external blockholders and earnings management. In addition, it examines the effect of company size on earnings management. Design/methodology/approach The sample includes 67 companies listed in the Mexican Stock Exchange for the period 2005-2015. The sample composition is quite industry-balanced. A cross-sectional version of the Jones model (1991) is to measure the earnings management. The GMM (generalized method of moments) model is also estimated. Findings The results show that family and institutional ownership reduce the earnings management, but the impact is different depending on the company size. Research limitations/implications The results show that there is a clear relationship between increasing participation of family and institutional investors and a reduction in earnings management. This is consistent with the literature that establishes that ownership is an effective regulatory mechanism that limits earnings management through closer supervision and involvement in management. Practical/implications For companies’ corporate governance and regulatory authorities, the results of this study may serve to improve the decision-making. Originality/value This study shows that ownership structure can provide corporate governance in Mexican listed companies with different monitoring and control capacities to influence companies’ strategies, particularly in relation to the discretion of earnings management.

Ownership Structure and Financial Reporting Quality: Influence of Audit Quality Evidence from Jordan

“…This is in line with the study of [32]. Reyna [13] revealed that institutional ownership reduces the EM practices, but this effect also is depending on the firm size.…”

“…It implies if these two independent variables increase, it leads to decrease EM, which also mean that the board's and family ownership have significantly positive influence on FRQ). The results regarding to BDOWN are supported by [18]; [21]; and the results regarding to FMOWN on the same line with Wang [25]; Ali et al [26]; Reyna [13]; Alaryan [30].…”

“…Ownership structure is a useful mechanism for minimizing conflicts between shareholders and managers. The ownership structure is an effective regulatory mechanism that limits EM through invisible supervision and involvement in management [13].…”

“…Reyna [13] studied the influence of ownership composition on EM practices, the results also indicate that family ownership decrease the EM practices, but this effect depends on the firm size. Madani et all [9] revealed no a significant effect between family ownership with FRQ.…”

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

“…Further, Eng et al (2019) claimed that the aggregate measure of REM may be better in capturing EM than a single measure of REM. Thus, this study uses an aggregate measurement of REM by multiplying the standardized residues from the discretionary expense and the level of cash flow from operations by À1 and adding them to the standardized residuals of the production costs (PROD), as: (Achleitner et al, 2014;Razzaque et al, 2016;San Martin Reyna, 2018). MANOWN is the proportion of the total shares held by executive directors to the total number of shares issued (Alves, 2012;Amran and Che Ahmad, 2013;Shayan-Nia et al, 2017).…”