TITLE:
Corporate Governance and Earnings Management: Evidence from Canada
AUTHORS:
Yoser Gadhoum
KEYWORDS:
Earnings Management, Ownership Structure, Corporate Governance, Accruals
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.10 No.4,
December
29,
2021
ABSTRACT: This paper investigates the relation between
corporate governance and earnings management in the Canadian setting
characterized by ownership concentration in the hands of large shareholders and
a separation between ownership and control. We find that earnings management
decreases with the level of cash flow rights of the largest ultimate owner and
increases with the magnitude of separation between its control and cash flow
rights. Earnings management is higher in firms controlled through pyramidal
structures and multiple classes of shares, and lower in firms where there is a
second ultimate owner with sufficient bargaining power vis-à-vis the largest
ultimate owner. Finally, earnings management is higher in family controlled
firms. Our results highlight the importance of firm-specific corporate governance
in determining earnings management.