The Effects of Corporate Ownership Structure and Board Size on Earnings Management: Evidence from Turkey

Mehmet Aygun,Suleyman Ic,Mustafa Sayim

doi:10.5539/ijbm.v9n12p123

Abstract

This study investigates the impact of corporate ownership structure and board size on earnings management for asample of Turkish firms registered on the Istanbul Stock Exchange (ISE) for the period of 2009 to 2012. The corporate ownership structure is measured with two variables: managerial ownership and institutional ownership. The board size can be defined as the number of members in the board. This study also uses three controlled variables: return on assets, size of the firm and financial leverage. The adjusted Jones Model (Dechow, Sloanand Sweeney, 1995) and the multivariate regression technique are utilized to examine the effect of corporate ownership structure and board size on earnings management. The results consistent with the previous studies show that the institutional ownership and the board size have a negative significant effect on the earnings management while the effect of the managerial ownership on the earnings management has positively statistically significant. The findings also reveal that the return on assets has a positively statistically significant effect on earnings management. However, the impact of the financial leverage on earnings management isnegatively statistically significant.

Highlights

Accounting earnings is commonly used and most accepted method to measure a firm’s financial performance
Another study conducted by Gabrielsen Jeffrey and Thomas (2002) reveal that the ownership structure found in different countries, including Denmark, deviates from the US ownership configuration and the findings indicate that managerial ownership effect on earnings management is a negatively statistically significant
This study examines the corporate ownership structure and board size effects on earnings management for an example of Turkish companies registered on the Istanbul Stock Exchange (ISE) for the period of 2009 to 2012

Summary

Introduction

Accounting earnings is commonly used and most accepted method to measure a firm’s financial performance. The disclosed financial statements can be utilized by firms as the Generally Accepted Accounting principles (GAAP) allow as an alternate accounting method. Schipper (1989) defines earnings management is one of the deliberate interventions in financial reporting process to achieve personal objectives rather than to maximize the shareholder values. This may result in the falsification of financial statement by managers, using accounting techniques and predicts to reach some objectives that create a conflict with the shareholders’ value maximization approach

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