The moderating role of corporate governance mechanism on the relationship between product market competition and earnings management: evidence from Bangladesh

Abstract

ABSTRACT This article evaluates the moderating effects of corporate governance mechanisms on the relationship between earnings management and product market competition. Market concentration, as measured by the HHI has shown significantly negative association with accrual and real earnings management. In contrast, product market power, as measured by the industry size, demonstrates a significant positive association. The result further illustrates that the cost of industry entry significantly impacts accrual earnings management. The corporate governance mechanism (CGI) significantly decreases earnings manipulation. Moreover, the corporate governance mechanism (CGI) considerably moderates the association between market concentration, industry entry cost, and earnings management. Compared to high and low-competitive industries, the impact of market competition on earnings management in moderately competitive industries is more significant. After establishing the Bangladesh Competition Commission, product market competition has shown more impact on earnings management. This research is the initial attempt to examine the moderating effect of corporate governance mechanisms on the relationship between product market competition and earnings management from the perspective of Bangladesh.