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Earnings quality and internal control in bank-dominated corporate governance

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  • Hideaki Sakawa

    (Nagoya City University)

  • Naoki Watanabel

    (Nagoya City University)

Abstract

This study examines the relationship between internal governance and earnings management in Japanese listed firms. Following recent accounting fraud in large companies, Japanese internal governance systems have been widely criticized. Japan has a bank-dominated corporate governance system. This study predicts that the bank–client relationship mitigates opportunistic earnings management by reducing the degree of information asymmetry. The results show that bank-appointed audit board members mitigate managerial earnings management. Neither outside directors nor audit committees help reduce opportunistic managerial earnings management. The findings imply that a lender monitoring system can substitute the monitoring role of outside directors and audit committees.

Suggested Citation

  • Hideaki Sakawa & Naoki Watanabel, 2021. "Earnings quality and internal control in bank-dominated corporate governance," Asian Business & Management, Palgrave Macmillan, vol. 20(2), pages 188-220, April.
    • Handle: RePEc:pal:abaman:v:20:y:2021:i:2:d:10.1057_s41291-019-00100-3
    DOI: 10.1057/s41291-019-00100-3
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    Cited by:

    1. Naoki Watanabel & Shohei Yamauchi & Hideaki Sakawa, 2022. "The Board Structure and Performance in IPO Firms: Evidence from Stakeholder-Oriented Corporate Governance," Sustainability, MDPI, vol. 14(13), pages 1-15, July.
    2. Hideaki Sakawa & Naoki Watanabel, 2022. "Accounting Frauds and Main-Bank Monitoring in Japanese Corporations," Journal of Business Ethics, Springer, vol. 180(2), pages 605-621, October.
    3. Hideaki Sakawa & Naoki Watanabel, 2021. "Family Control and Corporate Innovation in Stakeholder-Oriented Corporate Governance," Sustainability, MDPI, vol. 13(9), pages 1-13, April.
    4. Hideaki Sakawa & Naoki Watanabel & Junjian Gu, 2021. "The Internationalization and Voluntary Adoption of International Accounting Standards by Japanese MNEs," Management International Review, Springer, vol. 61(5), pages 713-744, October.
    5. Sakawa, Hideaki & Watanabel, Naoki & Gu, Junjian, 2022. "Internationalization and the reliance of analyst forecasts in stakeholder-oriented corporate governance: Evidence from Japanese MNEs," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    6. Yuji Shirabe & Makoto Nakano, 2022. "Does Integrated Reporting Affect Real Activities Manipulation?," Sustainability, MDPI, vol. 14(17), pages 1-27, September.
    7. Hideaki Sakawa & Naoki Watanabel, 2020. "Institutional Ownership and Firm Performance under Stakeholder-Oriented Corporate Governance," Sustainability, MDPI, vol. 12(3), pages 1-21, January.

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    More about this item

    Keywords

    Earnings quality; Bank monitoring; Corporate governance; Japan;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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