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Real earnings management and corporate governance: a study of Latin America

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  • Cristhian Mellado
  • Paolo Saona

Abstract

This article analyses the impact of ownership structure features and institutional settings on real activities manipulation. The analysis is based on a sample of listed companies in the underexplored Latin American market for the period of 2004–2016. Panel-data-based G.M.M. System Estimation is used in the empirical analysis. The results confirm that the monitoring role of the majority owner is crucial in mitigating managerial opportunistic behaviour. Here, opportunistic behaviour refers to engaging in real activities manipulation that reduces the informative content of financial statements. However, analysis of insider ownership revealed that managers had a negative impact on transparency. We observed that as insider ownership increases, managers engage more actively in real earnings management. We also find that the institutional ownership and the quality of the regulatory system proved to be effective mechanisms in reducing real activities manipulation.

Suggested Citation

  • Cristhian Mellado & Paolo Saona, 2020. "Real earnings management and corporate governance: a study of Latin America," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 33(1), pages 2229-2268, January.
    • Handle: RePEc:taf:reroxx:v:33:y:2020:i:1:p:2229-2268
    DOI: 10.1080/1331677X.2019.1691930
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    Cited by:

    1. Eman Fathi Attia & Messaoud Mehafdi, 2023. "The Dynamic Endogeneity Issue between Corporate Ownership Structure and Real-Based Earnings Manipulation in an Emerging Market: Advanced Dynamic Panel Model," Risks, MDPI, vol. 11(11), pages 1-27, October.
    2. Aifang Xin & Muqaddas Khalid & Shoaib Nisar & Iqra Riaz, 2024. "Financial Sustainability and Corporate Credit Risk: Moderating Role of Earnings Management," Sustainability, MDPI, vol. 16(13), pages 1-22, July.

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