Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Majority Shareholder Ownership and Real Earnings Management: Evidence from Korea

Majority Shareholder Ownership and Real Earnings Management: Evidence from Korea This article examines the influence of majority shareholder ownership on real earnings management. It investigates whether there is a conflict between or an alignment of majority and minority shareholders' interests. If majority shareholders' interests are aligned with those of minority shareholders, a greater majority shareholder ownership lowers real earnings management. On the other hand, if they are not aligned, majority shareholders' attempts to exploit minority shareholders will increase real earnings management. This study does not find a systematic relationship between majority shareholder ownership and real earnings management. However, real earnings management significantly decreases in the upward earnings management incentive bracket as majority shareholder ownership increases. This occurs primarily because majority shareholders are more sensitive to upward real earnings management, which has a negative effect on future performance. These results suggest that the larger the ownership of majority shareholders, the more they play a positive role in mitigating real earnings management. This positive role is only effective in the post‐Asian economic crisis period. These results may suggest that the economic crisis in Korea helped majority shareholders more conscious of the long‐term costs of real earnings management. These findings support the convergence‐of‐interests hypothesis, providing evidence by investigating real earnings management instead of accruals‐based earnings management. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of International Financial Management & Accounting Wiley

Majority Shareholder Ownership and Real Earnings Management: Evidence from Korea

Download PDF
36 pages

Loading next page...
 
/lp/wiley/majority-shareholder-ownership-and-real-earnings-management-evidence-rPD093HSR6

References (75)

Publisher
Wiley
Copyright
Copyright © 2013 Blackwell Publishing Ltd
ISSN
0954-1314
eISSN
1467-646X
DOI
10.1111/jifm.12006
Publisher site
See Article on Publisher Site

Abstract

This article examines the influence of majority shareholder ownership on real earnings management. It investigates whether there is a conflict between or an alignment of majority and minority shareholders' interests. If majority shareholders' interests are aligned with those of minority shareholders, a greater majority shareholder ownership lowers real earnings management. On the other hand, if they are not aligned, majority shareholders' attempts to exploit minority shareholders will increase real earnings management. This study does not find a systematic relationship between majority shareholder ownership and real earnings management. However, real earnings management significantly decreases in the upward earnings management incentive bracket as majority shareholder ownership increases. This occurs primarily because majority shareholders are more sensitive to upward real earnings management, which has a negative effect on future performance. These results suggest that the larger the ownership of majority shareholders, the more they play a positive role in mitigating real earnings management. This positive role is only effective in the post‐Asian economic crisis period. These results may suggest that the economic crisis in Korea helped majority shareholders more conscious of the long‐term costs of real earnings management. These findings support the convergence‐of‐interests hypothesis, providing evidence by investigating real earnings management instead of accruals‐based earnings management.

Journal

Journal of International Financial Management & Accounting – Wiley

Published: Mar 1, 2013

There are no references for this article.