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Corporate Ownership Structure and the Informativeness of Accounting Earnings in East Asia

Author

Listed:
  • Fan, Joseph P.H.
  • Wong, T.J.

Abstract

This study examines the relations between earnings informativeness, measured by the earnings-return relation, and the ownership structure of 977 companies in seven East Asian economies. Our results are consistent with two complementary explanations. First, concentrated ownership and the associated pyramidal and cross-holding structures create agency conflicts between controlling owners and outside investors. Consequently, controlling owners are perceived to report accounting information for self-interested purposes, causing the reported earnings to lose credibility to outside investors. Second, concentrated ownership is associated with low earnings informativeness as ownership concentration prevents leakage of proprietary information about the firms' rent-seeking activities, which are prevalent and profitable in East Asia.

Suggested Citation

  • Fan, Joseph P.H. & Wong, T.J., 2001. "Corporate Ownership Structure and the Informativeness of Accounting Earnings in East Asia," CEI Working Paper Series 2001-21, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2001-21
    Note: This version: October 2001, This paper was presented at the conference on Designing Financial Systems in East Asia and Japan: Toward a Twenty-First Century Paradigm. This two-day conference was co-organized by the International Monetary Fund and the CEI. It was held during September 24-25, 2001 at Hitotsubashi Memorial Hall in Tokyo, Japan. A select group of academics, researchers and policy makers from around the world gathered to examine the timely issue of how the financial systems and corporate governance in East Asia and Japan should be redesigned in order to achieve sustainable economic development. The conference included six sessions with 17 papers. All the presented papers were added to the CEI series of working papers. The series, as well as the contents of the conference, can be reached at http://cei.ier.hit-u.ac.jp.
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13950/wp2001-21a.pdf
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    Citations

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    Cited by:

    1. Peter F. Pope, 2003. "Discussion of Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International Study," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 273-283, May.
    2. Liu, Qiao & Lu, Zhou (Joe), 2007. "Corporate governance and earnings management in the Chinese listed companies: A tunneling perspective," Journal of Corporate Finance, Elsevier, vol. 13(5), pages 881-906, December.
    3. Warren Bailey & Yuan Gao & Connie X. Mao, 2004. "Business, Government, and the Information Environment: Stock Trading and Earnings Shocks in China, Indonesia, and Singapore," Annals of Economics and Finance, Society for AEF, vol. 5(1), pages 165-195, May.
    4. murhadi, werner R., 2009. "Good Corporate Governance And Earnings Management Practices: An Indonesian Cases," MPRA Paper 24756, University Library of Munich, Germany, revised Nov 2009.
    5. Christian Leuz & Felix Oberholzer-Gee, "undated". "Political Relationships, Global Financing and Corporate Transparency," Center for Financial Institutions Working Papers 03-16, Wharton School Center for Financial Institutions, University of Pennsylvania.
    6. Holthausen, Robert W., 2003. "Testing the relative power of accounting standards versus incentives and other institutional features to influence the outcome of financial reporting in an international setting," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 271-283, December.
    7. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    8. Kanagaretnam, Kiridaran & Lim, Chee Yeow & Lobo, Gerald J., 2014. "Effects of international institutional factors on earnings quality of banks," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 87-106.

    More about this item

    Keywords

    Ownership concentration; Transparency; Earnings informativeness; Emerging markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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