Managerial ownership, accounting choices, and informativeness of earnings

Managerial ownership, accounting choices, and informativeness of earnings This article hypothesizes that the level of managerial ownership affects both the informativeness of earnings and the magnitude of discretionary accounting accrual adjustments. The hypothesis draws on the theory of the firm, and exploits: (1) separation of ownership from control of economic decisions, (2) the extent and consequences of accounting-based contractual constraints, and (3) managers' incentives in selecting and applying accounting techniques. Results show managerial ownership is positively associated with earnings' explanatory power for returns and inversely related to the magnitude of accounting accrual adjustments. Moreover, ownership is less important for regulated corporations, suggesting regulation monitors managers' accounting choices. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Managerial ownership, accounting choices, and informativeness of earnings

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Publisher
Elsevier
Copyright
Copyright © 1995 Elsevier Ltd
ISSN
0165-4101
D.O.I.
10.1016/0165-4101(94)00393-J
Publisher site
See Article on Publisher Site

Abstract

This article hypothesizes that the level of managerial ownership affects both the informativeness of earnings and the magnitude of discretionary accounting accrual adjustments. The hypothesis draws on the theory of the firm, and exploits: (1) separation of ownership from control of economic decisions, (2) the extent and consequences of accounting-based contractual constraints, and (3) managers' incentives in selecting and applying accounting techniques. Results show managerial ownership is positively associated with earnings' explanatory power for returns and inversely related to the magnitude of accounting accrual adjustments. Moreover, ownership is less important for regulated corporations, suggesting regulation monitors managers' accounting choices.

Journal

Journal of Accounting and EconomicsElsevier

Published: Jul 1, 1995

References

  • The effect of size on the magnitude of long-window earnings response coefficients
    Chaney, P.K.; Jeter, D.C.
  • The nature of the firm
    Coase, R.H.
  • Detecting earnings management
    Dechow, P.M.; Sloan, R.G.; Sweeney, A.P.
  • The association between unexpected earnings and abnormal security returns in the presence of financial leverage
    Dhaliwal, D.S.; Lee, K.J.; Fargher, N.L.
  • Earnings expectations, firm size, and the informativeness of stock prices
    Wild, J.J.; Kwon, S.S.

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