Abstract
Mutual Savings Banks generally has weaker governance structure than other financial institutions, so the possibility of earnings management by blockholder or managements of MSB is higher than other financial institutions. However, we predict that if the ownership structure is diversified and second large shareholder can exercise their controlling right on MSB, they can elimi- nate and/or supervise the earnings management for largest shareholders private interest. In this regard, the paper verifies whether MSB with higher second large shareholder equity can reduce the earnings management by discretionary allowance for loan losses. We find that MSB with higher second large share- holder equity has significant negative relations with their DALL (discretionary allowance for loan losses). This result suggests that the greater the second large shareholder equity, the less likely the opportunistic earnings management. This paper extends the literature on financial institutions earnings management to verify whether governance system, especially, blockholder, second large share- holder and earnings management has significant relations.
Published Version
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