TY - JOUR
T1 - Foreign ownership and real earnings management
T2 - Evidence from Japan
AU - Guo, Jun
AU - Huang, Pinghsun
AU - Zhang, Yan
AU - Zhou, Nan
N1 - Publisher Copyright:
© 2015, American Accounting Association. All rights reserved.
PY - 2015/9/1
Y1 - 2015/9/1
N2 - Studying a sample of Japanese firms, we examine whether foreign investors exert a significant influence on earnings management through manipulation of real activities. We find that foreign investors play an independent role in restraining real earnings management, as captured by abnormal cash flow from operations, abnormal discretionary expenses, abnormal production costs, or a composite of the aforementioned three measures. These results are robust to a variety of controls, including economic fundamentals, domestic blockholdings, governance mechanisms, and endogeneity of foreign ownership. Our findings indicate that sophisticated foreign investors, with relatively few business ties to local management, improve the accounting oversight of local firms by curbing earnings manipulation via operating activities. Collectively, our evidence suggests that one potential benefit of capital market globalization is less real earnings management in particular and higher earnings quality in general.
AB - Studying a sample of Japanese firms, we examine whether foreign investors exert a significant influence on earnings management through manipulation of real activities. We find that foreign investors play an independent role in restraining real earnings management, as captured by abnormal cash flow from operations, abnormal discretionary expenses, abnormal production costs, or a composite of the aforementioned three measures. These results are robust to a variety of controls, including economic fundamentals, domestic blockholdings, governance mechanisms, and endogeneity of foreign ownership. Our findings indicate that sophisticated foreign investors, with relatively few business ties to local management, improve the accounting oversight of local firms by curbing earnings manipulation via operating activities. Collectively, our evidence suggests that one potential benefit of capital market globalization is less real earnings management in particular and higher earnings quality in general.
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U2 - 10.2308/jiar-51274
DO - 10.2308/jiar-51274
M3 - Article
AN - SCOPUS:84956875166
VL - 14
SP - 185
EP - 213
JO - Journal of International Accounting Research
JF - Journal of International Accounting Research
SN - 1542-6297
IS - 2
ER -