ESOPs and earnings management: an empirical note

Pornsit Jiraporn

Applied Financial Economics Letters, 2007, vol. 3, issue 5, 287-293

Abstract: This study seeks to ascertain the impact of employee stock ownership plans (ESOPs) on earnings management. The empirical evidence shows that firms with larger ESOP ownership exhibit a lower degree of earnings management. I suggest that this is the case because ESOPs motivate employees to monitor management, hence, reducing managerial opportunism in the form of earnings management. Besides, ESOPs may act as a takeover defence and help managers take the long-term view of the firm, thus, lessening the motivation for short-term transient earnings distortion. Finally, there is evidence that ESOP ownership alleviates earnings management only in firms where outside blockholders are present. 1 This empirical note was written when the author was on the finance faculty at Texas A & M International University (TAMIU) in Laredo, Texas.

Date: 2007
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DOI: 10.1080/17446540601118335

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