Flashcards in Private Control Beneﬁts and Earnings Management Deck (4)
Insider controlled ﬁrms are associated with more earnings management than noninsider controlled ﬁrms in low anti-self-dealing countries (i.e., in countries amenable to self-dealing) and in code law countries.
- Insider control is associated with 156% higher earnings management in countries that rank low on the anti-self-dealing rank.
What about common law countries? PBOC
In countries where beneﬁts consumption is lower, insiders may provide more informative disclosures to alleviate information asymmetry arising from complex ownership structures.
-> the lower earnings management of insider controlled ﬁrms
Effect of divergence between the insider’s cash-ﬂow rights and control rights?
Insider controlled ﬁrms in poor investor protection regimes with greater divergence are associated with more earnings management. In contrast,wedonotﬁnd evidence of divergence inﬂuencing earnings management of insider controlled ﬁrms in strong investor protection countries.