The effect of shareholder activism on earnings management: Evidence from shareholder proposals11We appreciate the helpful comments and suggestions from Stephen Taylor, Gary Biddle, Santosh Ramalingegowda, Feng Chen, Samir Trabelsi, Feng Tian, Shivaram Rajgopal, Qiang Cheng, as well as conference participants at the UTS Summer Accounting Conference, the Asian Financial Association Annual Meeting, the China International Conference of Finance, the AAA Annual Meeting, and the Financial Accounting and Reporting Section Midyear Meeting and seminar participants at The Hong Kong Polytechnic University and Hong Kong Baptist University. All errors are our own

Jeffrey Ng, Hong Wu, Weihuan Zhai and Jing Zhao

Journal of Corporate Finance, 2021, vol. 69, issue C

Abstract: We find that in general, both accrual-based and real earnings management decrease after the passage of shareholder-sponsored governance proposals. However, when accounting for the type of proposal, we observe significant heterogeneity in the effects on earnings management. Specifically, proposals focused on changing the governance structure (e.g., board independence) lead to reductions in both types of earnings management, whereas proposals specifically targeted at improving financial reporting quality lead to decreased accrual-based earnings management but increased real earnings management. The results suggest that constraints on accrual-based earnings management induce a shift toward real earnings management. Our paper indicates that the nature of the shareholder proposal has a significant impact on shareholder intervention.

Keywords: Shareholder activism; Shareholder proposals; Accrual-based earnings management; Real activities manipulation (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001358

DOI: 10.1016/j.jcorpfin.2021.102014

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