ABSTRACT
This study investigates how corporate entity directors and supervisors from business groups influence real earnings management (REM) by using a sample of firms listed on the Taiwan Stock Exchange. Our results show that firms with more corporate entity representatives are more likely to manipulate earnings upward through sales manipulation, overproduction, and reduction of discretionary expenditure. Prior studies focus on the effects of pyramid structures and cross-shareholdings. Our results contribute to provide new evidence that corporate entity representatives may increase agency costs and aggravate REM.
Disclosure statement
No potential conflict of interest was reported by the authors.
Correction Statement
This article has been republished with minor changes. These changes do not impact the academic content of the article.
Notes
1. The data is obtained from TEJ Corporate Governance data bank.
2. The standardized coefficients of AEM and AEM* RGROUPB are 0.3234 and 0.0750, respectively, indicating that one standard deviation increase in AEM will have an increase of REM by 0.3234 standard deviation and 0.0750 standard deviation for companies with directors and supervisors coming from business groups.