The impact of selected corporate governance variables in mitigating earnings management in the Philippines

• Main Author: Banderlipe, Mc Reynald Simbajon, II
• Format: text
• Language: English
• Published: Animo Repository 2008
• Subjects: Earnings management—Philippines; Corporate governance—Philippines; Accounting; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/6670; https://animorepository.dlsu.edu.ph/context/etd_masteral/article/12865/viewcontent/CDTG004434_P.pdf
• Institution: De La Salle University

Financial reporting seeks to communicate accounting information in assisting users to make relevant business decisions affecting the firm. The accounting information, normally presented in the form of financial statements, is the responsibility of the company’s management, who are given the prerogative to exercise judgment in disclosing the information. One of the ways that managers apply the use of prerogatives pertains to their discretionary reporting of a company’s earnings. However, the abuse of discretionary exercises resulted to debacles that shocked the business world and thus, provided leeway to popularize the concept of earnings management. Numerous studies were conducted as to how this accounting phenomenon can be restrained using discretionary accruals as a recognized measure of earnings manipulation. Given the increasing importance of corporate governance in the Philippines, this thesis attempts to explain the role of selected governance variables related to a company’s board of directors in mitigating earnings management in the country. Using the financial statements of publicly listed companies and a modification of an extant discretionary accruals measurement model, the findings revealed that the holding of multiple directorial positions by the independent directors, and the managerial ownership of the board and key management personnel are the significant factors that can limit the incentives to manage earnings in the Philippines. Moreover, firm size and return on assets were identified to have explanatory significance on earnings management among the control variables used. Further studies recommend examining the restraining power of governance variables from other disclosures, studying any incidence of earnings manipulation that may emanate from the pre- and post- occurrence of certain events, and using other control variables that can mitigate the existence of an information asymmetry environment that leads to earnings management in the country.