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Foreign ownership and financial reporting quality in private subsidiaries

Belén Gill de Albornoz Noguer () and Simona Rusanescu ()
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Belén Gill de Albornoz Noguer: Universitat Jaume I
Simona Rusanescu: Dpto. Finances i Comptabilitat

Working Papers. Serie EC from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: In a sample of large private Spanish subsidiaries, we find that the magnitude ofdiscretionary accruals is significantly higher when the parent company is foreign thanwhen it is local. Our tests support the thesis of recent research on earnings management strategies within multinational corporations (MNCs), suggesting that the parent company’s incentives underlie the observed negative relation between foreignownership and financial reporting quality at the subsidiary level. In particular, weobserve that: (1) the tenure of the controlling shareholder has a negative incrementaleffect on financial reporting quality in firms under foreign control, but not insubsidiaries of local groups; and (2) the negative association between foreign ownershipand financial reporting quality is mainly driven by the subsample of subsidiaries withparent companies located in countries with higher institutional quality than Spain.

Keywords: foreign ownership; private firms; subsidiaries; earnings management (search for similar items in EconPapers)
JEL-codes: F23 M41 M48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-cfn and nep-eur
Date: 2017-08
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasec:2017-02

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