The impact of board characteristics and ownership structure on earnings management: Evidence from a frontier market

Figures & data

Table 1. Measurement of variables in the research model

No.	Variables	Measurement
I	Dependent variables
1	Earnings management (EM)	The absolute value of discretionary accruals
II	Independent variables
Board chacrateristics
2	Board size (BOARD)	Number of board members
3	Non-executive board members (NED)	Number of board members do not participate in administration and management
4	CEO duality (DUAL)	The dummy variable, which equals 1 if the CEO is also the chairman and 0 otherwise
5	Board expertise (FAD)	Number of directors with expertise in finance and accounting/Total number of board members
6	Women directors (BSR)	Number of female board members
7	Board age (AGE)	The average age of the board members
Ownership structure
8	Ownership concentration (CO)	Percentage of shares held by shareholders owning 5% of shares or more in the firm
9	Managerial ownership (MO)	Percentage of shares owned by managers
10	State ownership (SO)	Percentage of shares held by the state
11	Foreign ownership (FO)	Percentage of shares held by foreign investors
III	Control variables
12	Firm size (SIZE)	Log10 of the total assets of the firm
13	Firm performance (ROE)	Return on equity
14	Financial leverage (LEV)	Total debt to total assets ratio
15	Cash flow (CF)	Operating cash flow this year to total assets of the previous year
16	Revenue growth (GROWTH)	The growth rate of revenue this year compared to last year
17	Independent audit (BIG4)	The dummy variable equals 1 if the firm is audited by Big4 (KPMG, EY, PWC, Deloitte) and 0 otherwise.

Table 2. Descriptive statistics of the board characteristics and ownership structure

Variables	Observations	Mean	Standard deviation	Min	Max
BOARD	3013	5.53999	1.176975	3	11
NED	3013	3.59774	1.310959	0	10
DUAL	3013	0.291403	0.4544846	0	1
FAD	3013	0.471114	0.3207343	0	1
BSR	3013	0.786923	0.9296654	0	6
AGE	3013	48.5515	5.018985	24	65.57143
CO	3013	0.502471	0.2193327	0	0.9925
MO	3013	0.111677	0.1540862	0	0.9351735
SO	3013	0.222769	0.2589812	0	0.9672
FO	3013	0.112825	0.1411786	0	0.7757961

Table 3. Descriptive statistics of the earnings management

Data	Observations	Mean	Standard deviation	Min	Max
EM (DA < 0)	1286	0.11721	0.10750	0.00002	1.264
EM (DA > 0)	1187	0.10273	0.13090	0.00006	2.186
EM	3013	0.11151	0.11747	0.00002	2.186

Table 4. Results of OLS, FEM, REM, and GLS regression

	OLS			FEM			REM			GLS
Variable	Data split		Data aggregation	Data split		Data aggregation	Data split		Data aggregation	Data split		Data aggregation
	Negative DA	Positive DA	Aggregated DA	Negative DA	Positive DA	Aggregated DA	Negative DA	Positive DA	Aggregated DA	Negative DA	Positive DA	Aggregated DA
	EM(NEG)	EM(POS)	EM	EM(NEG)	EM(POS)	EM	EM(NEG)	EM(POS)	EM	EM(NEG)	EM(POS)	EM
BOARD	0.0004	−0.0055	−0.0025	0.0070	−0.0086	0.0010	0.0033	−0.0059	−0.0023	0.0019	−0.0097***	−0.0006
NED	−0.0044*	−0.0002	−0.0024	−0.0052	0.0086	−0.0012	−0.0047	0.0003	−0.0013	−0.0047***	0.0050**	−0.0041***
DUAL	−0.0064	−0.0065	−0.0050	−0.0146*	−0.0258	−0.0153**	−0.0108	−0.0112*	−0.0085	−0.0121***	−0.0043	−0.0076**
FAD	0.0003	0.0224*	0.0089	−0.0099	0.0381	0.0044	−0.0027	0.0212	0.0087	−0.0064	0.0238***	0.0028
BSR	−0.0018	−0.0005	−0.0013	0.0030	0.0171*	0.0053	0.0016	0.0008	0.0009	0.0004	0.0012	0.0010
AGE	0.0015***	−0.0025***	0.0000	−0.0008	−0.0044***	−0.0021***	0.0005	−0.0034***	−0.0010**	0.0011***	−0.0053***	0.0000
CO	0.0254**	0.0162	0.0273**	0.0077	−0.0063	0.0237	0.0134	0.0082	0.0134	0.0317***	0.0340***	0.0298***
MO	−0.0283	−0.0638**	−0.0390**	0.0139	−0.1186**	−0.0294	−0.0122	−0.0575**	−0.0329*	−0.0216*	−0.0893***	−0.0152
SO	0.0039	−0.0503**	−0.0131	0.0076	−0.0239	0.0120	0.0109	−0.0490**	−0.0048	−0.0010	−0.0127	−0.0055
FO	−0.0567***	−0.0532	−0.0466***	−0.0974**	0.1581**	−0.0048	−0.0656	−0.0238	−0.0201	−0.0468***	−0.0113	−0.0380***
SIZE	0.0043*	0.0195***	0.0106***	0.0217	−0.0811**	−0.0088	−0.0090	−0.0068	−0.0106*	0.0048***	0.0281***	0.0089***
ROE	0.2641***	0.0832***	0.1920***	0.1963***	0.2025***	0.1972***	0.2294***	0.0869***	0.1900***	0.1731***	0.0954***	0.1473***
LEV	−0.0750***	0.0468**	−0.0374***	−0.0392	0.2881***	0.0526**	−0.0507***	0.0646***	−0.0067	−0.0785***	0.0740***	−0.0443***
CF	0.2016***	−0.0024	0.1436***	0.2217***	0.0021	0.1354***	0.2108***	0.0072	0.1405***	0.2081***	−0.020	0.1404***
GROWTH	0.0044	0.0070	0.0050	0.0009	0.0062	0.0026	0.0030	0.0073	0.0046	0.0036***	0.0051**	0.0033*
BIG4	−0.0069	−0.0340***	−0.0180***	0.0121	−0.0136	0.0073	0.0037	−0.0229**	−0.0059	−0.0027	−0.0320***	−0.0096***
R-square	62.53	40.71
N	1826	1187

Significance: * p < 0.1, ** p < 0.05, *** p < 0.01

Table 5. Results of AR(2) and Hansen test

Test	Data split		Data aggregation
	Negative DA	Positive DA	Aggregated DA
	EM(NEG)	EM(POS)	EM
AR(1)	0.000	0.000	0.000
AR(2)	0.947	0.571	0.800
Sargan	0.386	0.398	0.332
Hansen	0.610	0.439	0.148

Table 6. Results of system GMM

Variable	Data split		Data aggregation
	Negative DA	Positive DA	Aggregated DA
	EM(NEG)	EM(POS)	EM
EM_L1	0.0642**	0.0573*	0.0913***
BOARD	−0.00412	−0.00487	−0.00446
NED	−0.00159	0.00347	0.00187
DUAL	0.0124	0.00156	0.00748
FAD	0.016	0.00837	0.0132
BSR	−0.00414	0.00235	−0.00219
AGE	0.00144**	0.000561	0.000606
CO	0.0432**	0.0457	0.0460**
MO	−0.0604**	−0.0576	−0.0289
SO	−0.0251	−0.0676**	−0.0405**
FO	−0.0446*	−0.0966**	−0.0704***
SIZE	0.00429	0.00638	0.00674**
ROE	0.248***	0.126**	0.220***
LEV	−0.0713***	−0.0156	−0.0518***
CF	0.162	−0.13	0.0721
GROWTH	−0.0125	0.0279	−0.0108
BIG4	−0.00636	−0.0265***	−0.0117*
Number of Instruments	60	60	60
Number of Group	394	344	418

Significance: * p < 0.1, ** p < 0.05, *** p < 0.01