Does Corporate Governance Influence Earnings Management in Latin American Markets?

By Jesus Sáenz González, Emma García‐Meca. 2014

443 citations recorded by the source corpus.

Although US and European research has documented improvement in earnings quality associated with corporate governance characteristics, the situation in Latin America is questionable, given the business environment in which firms operate, which is characterized by controlling family ownership and weak legal protection. The purpose of this study is to examine the relation between the internal mechanisms of Corporate Governance and Earnings Management measured by discretionary accrual. We use a sample of listed Latin American non-financial companies from the period 2006–2009. Our results show how in the Latin American context the role of external directors is limited and that Boards which meet more frequently take a more active position in the monitoring of insiders, so showing a lower use of manipulative practices. In addition, we find a non-linear relation between insider ownership and discretionary accruals, also pointing to the fact that ownership concentration may be a manipulative practices constrictor mechanism only when the ownership of main shareholders is moderate. The findings have important policy implications since this is, to the best of our knowledge, the first study to analyze the relation between the effectiveness of the government and the earnings management behavior. As policy implications, we document how when a country implements controls aimed at reducing corruption, strengthening the rule of law or improving the effectiveness of government, this leads to a reduction in firm earnings management.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/a23cd8e3c61c58adc5b505dd7e7a2d53e6b63ccf

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Citations in the corpus

Corporate environmental disclosure and earnings management—The moderating role of corporate governance structures (2021, methodology): “Drawing on previous studies (e.g., Fama & Jensen, 1983; González & García-Meca, 2014; Jensen & Meckling, 1976), our research focuses secondly on the monitoring role of CG mechanisms in reducing corporate engagements in EM activities.”
The impact of corporate governance mechanisms on real and accrual earnings management practices: evidence from Jordan (2019, methodology): “Gonzalez and Garcia-Meca (2014) find concentrated ownership structures cause CG problems; this may well be the case in Jordan and hence: H7a: Ceteris paribus, there is a significant positive relationship between the largest shareholder ownership and REM in Jordan.”
Corporate Governance Quality and Earnings Management: Evidence from Jordan (2016, background): “González and García-Meca (2014) reported that management ownership, ownership concentration, board activity and board size have a negative relationship with earnings management measured by discretionary accruals.”