Non-executive employee ownership and financial reporting quality: evidence from Europe

Sami Adwan (), Alaa Alhaj-Ismail () and Ranko Jelic ()
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Sami Adwan: University of Sussex Business School, University of Sussex
Alaa Alhaj-Ismail: Coventry University
Ranko Jelic: University of Sussex Business School, University of Sussex

Review of Quantitative Finance and Accounting, 2022, vol. 59, issue 2, No 12, 793-823

Abstract: Abstract This paper examines the association between non-executive employee shareholding and financial reporting quality. The analysis is conducted using a sample of non-financial firms listed in eleven European countries between 2006 and 2017. We find a positive association between non-executive employee ownership and financial reporting quality. Furthermore, we find this positive association to be more pronounced for firms operating in the following settings: higher labour union density, more industry peer firms and more flexible labour market regulations. Overall, these findings support the view that employee shareholding enhances the quality of financial reporting by aligning the interests of employees with those of shareholders through two channels: reduced agency problems and enhanced employee retention. Our study contributes to the research on the impact of ownership characteristics on financial reporting incentives. It underscores the role non-executive employee ownership can play in improving a firm’s corporate governance and therefore the quality of financial reporting.

Keywords: Financial reporting quality; Earnings management; Employee ownership; Rank and file employees (search for similar items in EconPapers)
JEL-codes: J01 J54 M41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-022-01058-8

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