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Ownership structure and real earnings management: evidence from an emerging market

Shaker Dahan AL-Duais (Accounting Department, Faculty of Administrative Sciences, Ibb University, Ibb, Yemen)
Mazrah Malek (Tunku Puteri Intan Safinaz School of Accountancy (TISSA), College of Business, Universiti Utara Malaysia, Sintok, Malaysia)
Mohamad Ali Abdul Hamid (Putra Business School, University Putra Malaysia, Serdang, Malaysia)
Amal Mohammed Almasawa (Finance and Banking Department, Faculty of Administrative Sciences, Ibb University, Ibb, Yemen)

Journal of Accounting in Emerging Economies

ISSN: 2042-1168

Article publication date: 22 September 2021

Issue publication date: 1 March 2022

915

Abstract

Purpose

This study aims to investigate the monitoring role of ownership structure (OWS) on real earnings management (REM) practices; previous studies primarily examined the effect of OWS on accrual-based earnings management.

Design/methodology/approach

The sample of this study is 490 companies listed on the Malaysian Stock Exchange during the period 2013–2016 (1,960 company-year observations). The regression of a feasible generalized least square was used for data analysis. The authors use three regression models ordinary least squares, panel-corrected standard errors and Driscoll–Kraay standard errors to corroborate the findings and also examine alternative REM measures.

Findings

Analysis of the data shows that family, foreign and institutional ownership has a positive link with the quality of financial reporting and, to a large extent, is capable of alleviating REM. The findings also indicate that some form of OWS significantly affects REM, corroborating existing theories on corporate governance (CG) and the perspectives of practitioners.

Practical implications

The evidence concerns the significant role played by the OWS in reducing REM activities. The findings are useful in support of regulatory activities, particularly in the design of policies to regulate the OWS. The results may also provide useful insights to inform other policymakers, investors, shareholders and researchers about the active role of family, foreign and institutional investors in monitoring Malaysia's public listed companies (PLCs) to strengthen CG practices. This also leads to less REM and enhances the quality of financial reporting.

Originality/value

To the authors' knowledge, this work is pioneering research from a developing country, specifically from Malaysia, to investigate the manner in which all possible OWSs influence REM. More importantly, the study recommends that regulators and researchers do not envisage OWS as a holistic phenomenon.

Keywords

Acknowledgements

The paper had benefited greatly from the suggestions of three anonymous referees and the journal’s editor. The authors gratefully acknowledge the sponsorship and scholarship provided by Ibb University.

Citation

AL-Duais, S.D., Malek, M., Abdul Hamid, M.A. and Almasawa, A.M. (2022), "Ownership structure and real earnings management: evidence from an emerging market", Journal of Accounting in Emerging Economies, Vol. 12 No. 2, pp. 380-404. https://doi.org/10.1108/JAEE-01-2021-0008

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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