The Relationship between Institutional Ownership Stability and Earnings Management in terms of Corporate Financial Leverage

Document Type : Research Paper

Authors

1 Assistant Professor in Accounting, Shahid Bahonar University of Kerman, Kerman, Iran.

2 M.A. of Accounting, Shahid Bahonar University of Kerman, Kerman, Iran.

10.22103/jak.2021.17123.3421

Abstract

Objective: Institutional investors, due to the ownership of a significant portion of the companies' shares, have a significant influence on investable companies and are able to influence the process of these companies. They have resources to influence and monitor managers. This could lead to a focus on maximizing the long-term value of the company rather than short-term profitability goals. Also the managers of firms with high debts are involved in manipulation of earning to portray a better picture of their financial position. Therefore, the present study examines the relationship between institutional ownership stability and earnings management by considering the company's financial leverage.
 
Method: To achieve the purpose of present research, regression model wis used to test two hypotheses. The sample employed in this study consists of the 140 companies listed in Tehran Stock Exchange for the period 2014-2019. This study has three groups of variables. The first is the independent variable, namely, institutional ownership stability. he second group is the dependent variable, which is earnings management and financial leverage. Our measure of earnings management is based on the Jonse(1991) model. The third group consists of the control variables consis size. liquidity and loss.
 
Results: In general, the study finds that institutional ownership stability not improves the earnings management. In adition  the resulth  shows that relationship between institutional ownership stability and earnings management is negative. while the variables of the simultaneous effects of institutional ownership sustainability and financial leverage on earnings management are not significant.
 
Conclusion: This study investigates how institutional ownership stability influences earnings management the results of data analysis indicate that institutional investors holding stable equity stakes play an important monitoring role in reducing earnings management. We also document that the greater the stability of institutional ownership, the lesser the earning management in companies listed in Tehran Stock Exchange. Our findings of the negative association between real earnings management and institutional ownership stability also indicate that firms with more stable ownership are engaged in lesser sales manipulation and overproduction. Also the findings reveal that Corporate financial leverage has not a impact in relationship between institutional ownership stability and earnings management.

Keywords

References

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Journal of Accounting Knowledge
Volume 12, Issue 4 - Serial Number 47
December 2021
Pages 155-177

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History

  • Receive Date: 01 February 2021
  • Revise Date: 05 July 2021
  • Accept Date: 22 June 2021

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