Ownership concentration, audit committee characteristics, and earnings management : empirical analysis of Hong Kong listed companies

Pao Yue-kong Library Electronic Theses Database

Ownership concentration, audit committee characteristics, and earnings management : empirical analysis of Hong Kong listed companies

 

Author: Tse, Ping Shing
Title: Ownership concentration, audit committee characteristics, and earnings management : empirical analysis of Hong Kong listed companies
Degree: D.B.A.
Year: 2015
Subject: Corporate governance -- China -- Hong Kong
Industrial concentration.
Stock ownership.
Hong Kong Polytechnic University -- Dissertations
Department: Faculty of Business
Pages: vi, 92 pages ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2890561
URI: http://theses.lib.polyu.edu.hk/handle/200/8456
Abstract: This study contributes to the institutional theory of corporate governance literature by identifying the relationship between earnings quality and ownership concentration. Using data and published information taken from listed firms in Hong Kong, it determines whether such a relationship is moderated by various audit committee characteristics, including independence, the financial expertise of audit committee members, gender diversity, and audit activity. It also considers how this relationship differs in extreme economic environments, as was the case during the financial crisis in 2008. One hundred and fifty-four firms listed on the Hong Kong Stock Exchange in 2008 were randomly selected to test the hypothesis that firms with a high ownership concentration exhibit higher earnings quality. A similar test was run for the same list of firms using data and published information from 2011. The results provide evidence that ownership concentration has a positive relationship with earnings quality (and alternatively a negative relationship with earnings management). This study also examines the relationship between each of the aforementioned four audit committee characteristics and earnings quality. There is no evidence that audit committee characteristics and earnings quality have any significant relationship, confirming that the research in this area yields mixed results.Based on the test results, this study suggests that corporate governance in Hong Kong follows the institutional strand,indicating that audit committees and outside directors serve a ritualistic function rather than a monitoring role. Finally, the two variables ownership concentration and audit committees, are interacted, and no evidence is found to support the notion that audit committees play a significant role in constraining earnings management behavior. However, the characteristic of financial expertise does have a moderating effect on the relationship between ownership concentration and earnings quality for firms operating in the financially turbulent year of 2008.Consistent with the literature that finds that outside directors are appointed to boards to provide strategic advice rather than to monitor managerial activity, especially when they are in possession of specialized knowledge such as financial expertise, this study concludes that under extreme financial conditions such as financial crises, audit committees play a more proactive role in terms of constraining opportunistic behavior such as earnings management behavior. Audit committee members who possess specialized financial knowledge and expertise are also consulted more extensively during financial crises by family firms seeking to improve their earnings quality in general.

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