Ownership structure and real earnings management: An empirical study on emerging economy

Abstract

We observe the association amid ownership structure and real earnings management in Bangladesh. Our study takes 2195 firm-year observations which are listed on the Dhaka Stock Exchange over the period of 2000-2017. The outcome of the panel least square regression indicates that inside ownership, as well as foreign ownership, is inversely related to real earnings management, whereas institutional ownership is positively related to real earnings management. In particular, firms tend to reduce discretionary expenses to manage earnings if the magnitude of inside ownership is low. In contrast to that, when firms are characterized by more institutional ownership, they are more inclined towards real earnings management through additional price discounts, offering a more friendly credit facility, and lowering discretionary expense. This result is consistent with previous findings. Nevertheless, if firms encounter an absence of foreign ownership, they prefer to manage earnings through operating at over-production levels as well as lowering discretionary expenses. Additionally, we find that corporate governance is playing a beneficial role in limiting real earnings management