Ownership Structure and Characteristics of Earnings
Han, Soongsoo
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https://hdl.handle.net/2142/87159
Description
Title
Ownership Structure and Characteristics of Earnings
Author(s)
Han, Soongsoo
Issue Date
2006
Doctoral Committee Chair(s)
Abdel-Khalik, A. Rashad
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Accounting
Language
eng
Abstract
This study investigates the relationship between ownership structure and various earnings characteristics assumed to be associated with the quality of reported earnings. I provide evidence that the absolute value of discretionary accruals, the standard deviation of residuals from the Dechow-Dichev model, and earnings smoothing ratio are increasing in managerial ownership and the persistence of Return-on-Assets is decreasing in managerial ownership. On the other hand, the opposite associations are observed for institutional ownership except for earnings smoothing ratio. These associations persist after controlling for other factors expected to affect the relationship such as firm size, book-to-market, risk, leverage, sales growth, and regulatory environment. These findings suggest that the presumable incentive alignment effect that prompts firms to provide stock ownership to a larger set of executives come at a cost to investors, namely that of diminishing reliability of reported earnings. Additional tests show that the proprietary costs of disclosure may, in part, lead managers to internalize the costs by reducing the quality of disclosure as their ownership grows in size. These findings shed new light on conflicting results documented in prior literature by the role of the proprietary costs of disclosure play in reporting earnings.
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