Effect of firm characteristics and corporate governnace on earnings management: Evidence from publicly listed property sector in the Philippines

• Main Authors: Cudia, Cynthia P., Dela Cruz, Aeson C., Estabillo, Madeleine B.
• Format: text
• Published: Animo Repository 2020
• Subjects: Earnings management—Philippines; Corporate governance—Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/faculty_research/11022
• Institution: De La Salle University

Two types of earnings management, opportunistic and efficient motive, were presented in the literature. This paper aimed to investigate the type of earnings management employed by publicly listed property sector firms in the Philippines. Furthermore, the study also examined the effect of firm characteristics and corporate governance practices on firm’s level of earnings management using discretionary accruals. In conducting this study, panel-data econometric technique; particularly the ordinary least squares was used to determine which among the firm-specific characteristics (profitability, leverage, cash flows from operations, and firm size) or corporate governance mechanisms (CEO duality, board size, board independence, and audit quality) significantly influence publicly listed property sector firms’ earnings management activities using discretionary accruals. Results show that these firms employ efficient type of earnings management. Also, cash flows from operations, firm size, and CEO duality are statistically significant predictors of earnings management for property firms. Except for cash flows from operations, these results contradict the initial findings of Cudia and Dela Cruz (2018) when they subjected the same model for industrial firms. Such similarity and differences warrant for further analysis on the peculiarities and intrinsic characteristics of the industrial and property sector in the Philippines. Such will point to certain policy frameworks in enabling earnings management to be harnessed in satisfying the firms’ bottom lines.