Corporate Governance and Real Earnings Management: The Role of Board and Institutional Investors

Mahfuja Malik

Abstract



This study investigates whether corporate governance can mitigate real earnings management. In recent years, firms have been switching from accrual-based to real earnings management, and the incidence of real earnings management has increased. The role of corporate governance to reduce accrual-based earnings management is well documented in the literature; however, there is no firm evidence regarding the role of corporate governance to constrain real earnings management. To fill the gap in the literature, this paper examines whether corporate governance can play any role to reduce real earnings management. In this study, I find the evidence that firms may engage in real earnings management either to avoid reporting losses or to meet analysts’ forecasts. The cross-sectional analysis reveals that these activities are less prevalent for the firms that have larger institutional investors; however, no evidence regarding the role of the board to prevent real earnings management is indicated.

Keywords: corporate governance, real earnings management, board, institutional investors.

 

 

 


Keywords


corporate governance, real earnings management, board, institutional investors.

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