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Article: Corporate Governance and Earnings Management: Evidence from Shareholder Proposals
Title | Corporate Governance and Earnings Management: Evidence from Shareholder Proposals |
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Authors | |
Keywords | Shareholder activism Corporate governance Earnings management Shareholder proposals |
Issue Date | 2021 |
Publisher | Wiley. The Journal's web site is located at http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1911-3846/ |
Citation | Contemporary Accounting Research, 2021, v. 38 n. 2, p. 1434-1464 How to Cite? |
Abstract | We examine the causal effects of corporate governance on earnings management using shareholder‐sponsored proposals that pass or fail by a small margin of votes in annual shareholder meetings. This setting provides a causal estimate that overcomes concerns of endogeneity. Specifically, compared with firms whose shareholder proposals fall just short of a majority threshold, firms whose shareholder proposals narrowly pass have similar characteristics but a discretely higher likelihood of implementing improvements in governance. As such, we expect that firms whose shareholder proposals pass the threshold by a small margin exhibit a significantly lower level of earnings management. Employing a regression discontinuity design, we find results that support our expectation based on the propensity to just meet or beat analysts’ forecasts by one cent as a proxy for earnings management. In addition, we show that the results are driven by governance changes that increase directors’ monitoring. Our results are robust to using discretionary accruals as an alternative measure of earnings management. Collectively, the results suggest that improvements in corporate governance curtail earnings management, and support the underlying premise of regulators that improvements in corporate governance would improve financial reporting. |
Persistent Identifier | http://hdl.handle.net/10722/286056 |
ISSN | 2023 Impact Factor: 3.2 2023 SCImago Journal Rankings: 3.086 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Fan, Z | - |
dc.contributor.author | Radhakrishnan, S | - |
dc.contributor.author | Zhang, Y | - |
dc.date.accessioned | 2020-08-31T06:58:28Z | - |
dc.date.available | 2020-08-31T06:58:28Z | - |
dc.date.issued | 2021 | - |
dc.identifier.citation | Contemporary Accounting Research, 2021, v. 38 n. 2, p. 1434-1464 | - |
dc.identifier.issn | 0823-9150 | - |
dc.identifier.uri | http://hdl.handle.net/10722/286056 | - |
dc.description.abstract | We examine the causal effects of corporate governance on earnings management using shareholder‐sponsored proposals that pass or fail by a small margin of votes in annual shareholder meetings. This setting provides a causal estimate that overcomes concerns of endogeneity. Specifically, compared with firms whose shareholder proposals fall just short of a majority threshold, firms whose shareholder proposals narrowly pass have similar characteristics but a discretely higher likelihood of implementing improvements in governance. As such, we expect that firms whose shareholder proposals pass the threshold by a small margin exhibit a significantly lower level of earnings management. Employing a regression discontinuity design, we find results that support our expectation based on the propensity to just meet or beat analysts’ forecasts by one cent as a proxy for earnings management. In addition, we show that the results are driven by governance changes that increase directors’ monitoring. Our results are robust to using discretionary accruals as an alternative measure of earnings management. Collectively, the results suggest that improvements in corporate governance curtail earnings management, and support the underlying premise of regulators that improvements in corporate governance would improve financial reporting. | - |
dc.language | eng | - |
dc.publisher | Wiley. The Journal's web site is located at http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1911-3846/ | - |
dc.relation.ispartof | Contemporary Accounting Research | - |
dc.rights | This is the peer reviewed version of the following article: Contemporary Accounting Research, 2021, v. 38 n. 2, p. 1434-1464, which has been published in final form at https://doi.org/10.1111/1911-3846.12640. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. | - |
dc.subject | Shareholder activism | - |
dc.subject | Corporate governance | - |
dc.subject | Earnings management | - |
dc.subject | Shareholder proposals | - |
dc.title | Corporate Governance and Earnings Management: Evidence from Shareholder Proposals | - |
dc.type | Article | - |
dc.identifier.email | Fan, Z: zwfan@hku.hk | - |
dc.identifier.authority | Fan, Z=rp02613 | - |
dc.description.nature | postprint | - |
dc.identifier.doi | 10.1111/1911-3846.12640 | - |
dc.identifier.scopus | eid_2-s2.0-85097760691 | - |
dc.identifier.hkuros | 313089 | - |
dc.identifier.volume | 38 | - |
dc.identifier.issue | 2 | - |
dc.identifier.spage | 1434 | - |
dc.identifier.epage | 1464 | - |
dc.identifier.isi | WOS:000600028000001 | - |
dc.publisher.place | Canada | - |
dc.identifier.issnl | 0823-9150 | - |