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The purpose of this paper is to investigate whether ownership structure affects earnings management in the banking industry of emerging markets.

The empirical study is conducted using a sample of 134 banks from 12 Middle Eastern and North African countries. Econometrically speaking, the study used a panel data regression analysis.

The authors found convincing evidence that banks with more concentrated ownership use discretionary loan loss provisions to manage their earnings. The authors also found that state and institutional owners encourage earnings management, while family owners reduce this practice.

The findings would be valuable for investors since they should take into account ownership structure in order to reach a better investment decision. Moreover, regulatory reforms in emerging markets should push for more transparency about ownership structure, high levels of supervision, and external audit quality.

This study presents international evidence on the prominent role of owners in earnings management in emerging markets with weak shareholder rights protection.