Governance-Owner Structure and Earnings Management: Evidence from Korea

Abstract

This paper examines how the threat of expropriation by the ultimate owners affects earnings management and auditing quality. The empirical results indicate that the ultimate owners of Korean firms typically exert control in considerable excess of their cash flow rights. This study also shows the threat of expropriation by ultimate owners has a positive effect on earnings management as measured by discretionary accruals estimates, while auditing quality and the percent of institutional investor shareholding are not significantly related to CEOs’ opportunistic behavior.