How Corporate Governance Mitigates the Abuse of Earnings Management：The Perspective of Firm Performance

• Main Authors: Hui-wen Tang, 湯惠雯
• Other Authors: Anlin Chen
• Format: Others
• Language: en_US
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/8h58gn

博士 === 國立中山大學 === 企業管理學系研究所 === 95 === Earnings management can be used to respond to a variable economics environment to improve firm performance under efficient contracting perspective but earnings management can also be abused to hurt a firm’s performance under opportunistic behavioral perspective. Investors, therefore, have difficulty to understand and know about the purpose of earnings management, especially for firms in Taiwan that are very likely to engage in earnings management due to poor governance. Although numerous literatures have shed light on managers’ incentives on earnings management and the effects of earnings management on firm performance, little attention has been devoted to disentangle the relation among corporate governance, earnings management and firm performance. The purpose of this dissertation is to unravel manager’s intension on earnings management and to clarify whether proper governance can alleviate the abuse of earnings management and, therefore, enhance firm performance. Without distilling the effect of corporate governance on earnings management, the empirical results indicate that there is an inverse relation between earnings management and firm performance, implying that managers are more likely to exploit the latitude of earnings management to mislead investors and gain opportunistic profit. This dissertation further examines the relation between earnings management and the features of corporate governance including ownership structure and board characteristics. These results show that stronger corporate governance can effectively reduce the abuse of earnings management. Furthermore, this dissertation provides the evidence that the relation between earnings management and firm performance is improved when the use of earnings management is monitored under proper governance.