Abstract
This paper aims to determine whether corporate governance affects manager's real operating or investment decision to control reported earnings. Through data analysis of firms listed on the Korean stock exchange, it was found that the aggregated measure of real activity-based earnings management decreases as the size of board is larger or as a greater proportion of external directors sit on the board. Those findings are almost the same, whether a corporate governance index composed by each BOD characteristics is employed, or problem caused by endogenous relationships among variables is controlled. The results provide the first empirical evidence that real activity-based earnings management is influenced by corporate governance structure. This focus on real activity-based earnings management suggests new avenues for research on corporate governance. The results offer some insights for policy makers interested in promoting legislation to ensure strong corporate governance in their nation. Santrauka Šiame straipsnyje siekiama nustatyti, kokią įtaką turi kompanijos vadovo sprendimai, susiję su gaunamų pajamų iš darbuotojų tiesioginės veiklos / operacijų ar investicinių sprendimų kontrole. Tyrime dalyvavo Korėjos kompanijos. Autorių atlikti tyrimai parodė, kad darbuotojų darbo užmokesčio valdymas yra efektyvesnis nei tiesioginė vadovo kontrolė. Straipsnyje minima, kad priėmus sprendimą valdyti darbo užmokesčius, būtina keisti visą įmonės valdymo struktūrą. Gauti rezultatai yra kaip siūlymas peržiūrėti atitinkamus nacionalinius teisės aktus Korėjoje.
Highlights
Corporate governance is a decision-making structure or process that monitors and controls firms and their managements in order to achieve firms’ goals
In order to examine contextual analysis, we examine the relationships between corporate governance and real activity based earnings management when the committee operates inside a firm or when firms incur a loss
In order to determine the effectiveness of an audit committee, we analyze the associations between board structure and real activity based earnings management when an audit committee operates inside a firm in the robustness check section
Summary
Corporate governance is a decision-making structure or process that monitors and controls firms and their managements in order to achieve firms’ goals. In the form of such bodies as the board of directors or audit committee, is effective, managers’ discretionary accounting choices and arbitrary operational/investment decisions could both be reduced. For the test of the robustness of our findings, a corporate governance index and control for endogenous variables are used Both OLS and 2SLS regressions were employed to examine the associations between corporate governance and a firm’s real activity-based earnings management. Journal of Business Economics and Management, 2012, 13(1): 29–52 that certain board characteristics, such as size or independence, effectively constrain managers’ real activity-based earnings management. The results highlight the importance of strong corporate governance within a firm, because corporate governance can effectively control real activity-based earnings management, which in turn affects firm performance.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
