Relating Ownership and Board Characteristics to Earnings Management: Evidence from France


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Abstract


This paper studies the influence of ownership structure and board characteristics on earnings management practices in the context of concentrated ownership. Specifically, its purpose is to emphasize the importance of ultimate ownership and particular board features in France in mitigating the type of managerial opportunism that is evident in earnings management practices. Our sample comprises 343 French firms listed in 2008. The results show that the ultimate controlling shareholder can reduce the prevalence of earnings management in French firms, supporting the alignment effect hypothesis. However, ownership discrepancy – where voting rights are out of proportion to cash flow rights – is associated with increased earnings management practices. Our findings also show that independent directors become less efficient in their monitoring role in a concentrated ownership environment
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Keywords


Ultimate Ownership; Discrepancy; Earnings Management; Board Characteristics

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