AGENCY CONFLICTS AND FINANCIAL REPORTING QUALITY

Slavko Sodan (), Ivana Perica () and Stipe Curkovic ()
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Slavko Sodan: University of Split, Split, Croatia, Faculty of Economics, Business and Tourism
Ivana Perica: University of Split, Split, Croatia, Faculty of Economics, Business and Tourism
Stipe Curkovic: University of Split, Split, Croatia, Faculty of Economics, Business and Tourism

Economic Thought and Practice, 2023, vol. 32, issue 2, 495-509

Abstract: This paper examines the impact of agency conflicts in owner-manager-creditors relations on financial reporting quality. Based on arguments from the agency theory and the positive accounting theory, we assume that companies without debt and in which managers are ultimate owners, i.e. where agency conflicts are not profound, have a higher earnings quality than companies using financial leverage and with separated owner-manager role. The data for empirical part of the research was gathered from Orbis Europe database. The sample consists of very large, large, and medium-sized companies from Croatia, Serbia, and Slovenia with financial data covering 2018 and 2019. In order to test research hypotheses the sample is divided into two groups depending on a company's ownership and debt characteristics. Descriptive statistics, univariate tests, correlation analysis and regression analysis are used to analyse the results. Our findings indicate that there is no statistically significant difference in the earnings quality concerning the type of ownership, while the level of financial leverage, by contrast, significantly decreases the earnings quality.

Keywords: Financial leverage; Agency costs; Financial reporting quality (search for similar items in EconPapers)
JEL-codes: M40 M41 M48 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.17818/EMIP/2023/2.10

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