تأثیر مالکیت هرم بر مدیریت سود The impact of pyramid ownership on earnings management

1. Introduction Earnings management is an important issue in accounting studies (Rangan 1998; Shivakumar 2000; Roychowdhury 2006; Ball and Shivakumar 2008; Cohen and Zarowin 2010; Banko et al. 2013; Wongsunwai 2013; to name a few). In particular, the effect of ownership structure on earnings management has attracted more and more studies (Warfield et al. 1995; Fan and Wong 2002; Francis et al. 2005; Wang 2006). In Canada, many large firms belong to business groups, which are typically organized as pyramids (Attig et al. 2004; Morck et al. 2005; King and Santor 2008; and Zeng 2011). That is, an apex firm (alternatively named ultimate owner or controlling shareholder) holds controlling shares in a first tier of firms. Each of these firms then holds controlling blocks in a second tier of firms, and so on. La Porta et al. (1999) finds that many firms have controlling shareholders who control a group of firms through pyramidal structure around the world except in the U.S. and the U.K. A number of studies have examined the impact of pyramid ownership on firm performance and valuation (Fan and Wong 2002; La Porta et al. 2002; Attig et al. 2004; King and Santor 2008; Malan et al. 2012). However, few studies investigate whether pyramid ownership affects managers’ earnings management activities. Prior studies have examined the relationship between ownership and earnings management, and in particular, earnings management in family firms (Garcia Lara et al. 2005; Wang 2006; Ali et al. 2007; Tong 2007; Ahn and Kwon 2009; Bhaumik and Gregoriou 2010; Gomez-Mejia et al. 2014; Achleitner et al. 2014). Though a family pyramid is generally used by founding families to retain control over firms, it is merely a part of a pyramidal structure (Morck et al. 2000; Bhaumik and Gregoriou 2010). Indeed, many pyramidal groups are not family pyramids in Canada. Hence, the results found in prior research on family pyramids may not be generalized to a general pyramidal structure. In addition, studies which examine family pyramids tend to focus on the relationship between a family’s large ownership and earnings management as well as the role that the family members play in managing earnings (e.g. Garcia Lara et al. 2005; Prencipe et al. 2008; GomezMejia et al. 2014; Achleitner et al. 2014). Few studies examine a common feature in a pyramid – deviation of cash flow rights from control rights, and its impact on earnings management (Fan and Wong 2002). Divergence between control rights and cash flow rights exacerbates an agency problem as it allows the controlling shareholders to pursue private benefits, but avoid the related negative cash flow consequences (Shleifer and Vishny 1997; Claessens et al. 2002; Gugler and Yurtoglu 2003; Morck et al. 2005; Malan et al. 2012). This study adds to the extant literature by investigating the impact of the deviation of cash flow rights from control rights on earnings management.