TY - JOUR

T1 - Ownership structure and earnings management

T2 - Evidence from the Casablanca Stock Exchange

A1 - Farooq,Omar

A1 - El Jai,Hind

AU - Farooq,Omar

AU - El Jai,Hind

PB - European Journals, Inc.

PY - 2012

Y1 - 2012

N2 - Does poor legal protection of minority shareholders provide enough incentives for majority shareholders to expropriate minority shareholders and hide their unscrupulous behavior through accounting manipulations? This paper attempts to study the effect of ownership structure (ownership of the largest shareholder and identity of the largest shareholder) on earnings management in Morocco. Using annual estimates of discretionary accruals, we document that the presence of institutions as the largest shareholder has a negative impact on earnings management. Our results show that firms with foreign or local institutions as the largest shareholders engage in significantly lower earnings management than other firms. Our results are consistent with prior literature that considers institutions – which have greater resources, more sophistication than individual investors, and more relevant expertise – as important monitoring device. Interestingly, our results show that ownership concentration – percentage shareholding of the largest shareholder – has no significant impact on earnings management. The result is in contrast to prior literature that suggests ownership concentration to either cause alignment effect and result in lower earnings management or cause entrenchment effect and result in higher earnings management.

AB - Does poor legal protection of minority shareholders provide enough incentives for majority shareholders to expropriate minority shareholders and hide their unscrupulous behavior through accounting manipulations? This paper attempts to study the effect of ownership structure (ownership of the largest shareholder and identity of the largest shareholder) on earnings management in Morocco. Using annual estimates of discretionary accruals, we document that the presence of institutions as the largest shareholder has a negative impact on earnings management. Our results show that firms with foreign or local institutions as the largest shareholders engage in significantly lower earnings management than other firms. Our results are consistent with prior literature that considers institutions – which have greater resources, more sophistication than individual investors, and more relevant expertise – as important monitoring device. Interestingly, our results show that ownership concentration – percentage shareholding of the largest shareholder – has no significant impact on earnings management. The result is in contrast to prior literature that suggests ownership concentration to either cause alignment effect and result in lower earnings management or cause entrenchment effect and result in higher earnings management.

KW - Earnings Management, Ownership Structure

KW - Corporate Governance

KW - Emerging Markets

UR - http://www.internationalresearchjournaloffinanceandeconomics.com/ISSUES/IRJFE_Issue_84.htm

JO - International Research Journal of Finance and Economics

JF - International Research Journal of Finance and Economics

SN - 1450-2887

VL - 84

SP - 95

EP - 105

ER -