Managerial Ownership, Audit Quality, and Earnings Management
Resource
Asia Pacific Management Review, 8(3), 409-438
Journal
Asia Pacific Management Review
Journal Volume
8
Journal Issue
3
Pages
409-438
Date Issued
2003
Date
2003
Author(s)
Abstract
Separation of ownership and control induces agency problems. The contracts written to restrict manager's self-serving behavior often incorporate accounting-based constraints, which arouses mangers' motivation to manage reported accounting numbers to either alleviate constraints or capitalize on available incentives. Theory predicts that increased managerial ownership can reduce managers' exploitation of accounting numbers. Another factor able to constrain earnings management is the quality of the external auditor. This study provides empirical evidence regarding the relation between managerial ownership, earnings management, and audit quality in Taiwan. We find managerial ownership and audit quality are both inversely associated with abnormal accruals. Managerial ownership, however, is not found to be associated with stock returns. Furthermore, we document evidence that stock market reacts negatively to abnormal accruals and positively to audit quality.
Type
journal article
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