An assessment of corporate governance reforms in Italy based on a comparative analysis of earnings management
Abstract
Purpose
The purpose of this paper is to evaluate the impact of corporate governance reforms in Italy.
Design/methodology/approach
The authors argue that the effectiveness of corporate governance can best be assessed with reference to the choices made by management or controlling shareholders. They use the curtailment of earnings management as a desirable and measureable outcome of good corporate governance to assess Italy’s progress since the 1990s. The UK is used as a reference point because it is a European Union (EU) economy of comparable size and there is evidence that its firms managed earnings to a much lesser extent than their counterparts in Italy in the 1990s. A matched sample of UK and Italian firms was used for the empirical analysis.
Findings
It was found that in contrast to the situation in the 1990s, firms in Italy do not manage earnings to a greater extent than their UK counterparts after the corporate governance reforms. In addition, firm-level governance has a greater effect on earnings management in Italy than in the UK. The authors attribute this to firm-level governance compensating for deficiencies in national institutions.
Research limitations/implications
The restriction of earnings management is just one positive consequence of good governance. Other positive outcomes require to be studied to form a complete picture of the impact of governance reforms in Italy.
Originality/value
This paper is the first to use an outcome-driven approach to evaluate the impact of governance reforms.
Keywords
Acknowledgements
The authors acknowledge the helpful comments of Tongyu Cao, John Forker and Irene Lynch-Fannon. All remaining errors are those of the authors.
Citation
Campa, D. and Donnelly, R. (2014), "An assessment of corporate governance reforms in Italy based on a comparative analysis of earnings management", Corporate Governance, Vol. 14 No. 3, pp. 407-423. https://doi.org/10.1108/CG-06-2012-0048
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited