The Effects of Corporate Characteristics on Managerial Entrenchment

Document Type: Research Paper

Authors

1 Faculty of Accounting, Ferdowsi University of Mashhad, Mashhad, Iran

2 Islamic Azad University, Qaenat Branch, Qaenat, Iran

Abstract

The present study aims to assess the relationship between some corporate factors and managerial entrenchment in companies listed on the Tehran Stock Exchange during 2011-2017. Panel data regression models were used to test the hypotheses. The obtained results indicated that four corporate factors, namely real earnings management, predictable earnings management, institutional ownership, and board independence, have a significant relationship with the managerial entrenchment. In this study, the mixed index of managerial entrenchment is calculated using the principal component analysis based on four governance mechanisms of the percentage of shares available to the CEO, CEO duality, CEO compensation logarithm, and CEO tenure. This process has made the present study distinct from the previous ones, in which individual indexes were used for evaluating the entrenchment.

Keywords

Main Subjects


Article Title [فارسی]

بررسی اثر عوامل شرکتی بر روی سنگرگیری مدیریت

Authors [فارسی]

  • مهدی صالحی 1
  • محمود لاری دشت بیاض 1
  • محمد محتشمی 2
1 گروه حسابداری، دانشگاه فردوسی مشهد، مشهد، ایران
2 دانشگاه ازاد اسلامی واحد قائنات، قائنات، ایران
Abstract [فارسی]

هدف از انجام این پژوهش، بررسی ارتباط برخی عوامل شرکتی با سنگرگیری مدیریت در بین شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران می­باشد. قلمرو زمانی پژوهش محدود به سال­های 1395- 1389 است. روش پژوهش توصیفی- همبستگی بوده و برای تبیین ارتباط بین متغیرهای پژوهش از مدل­های رگرسیونی مبتنی بر داده­های پانلی استفاده شد. در این پژوهش، با استفاده از تحلیل مولفه­های اصلی مبتنی بر چهار سازوکار حاکمیتی درصد سهام در اختیار مدیر عامل، دوگانگی نقش مدیر عامل، لگاریتم پاداش هیات مدیره و دوره تصدی مدیر عامل، شاخص ترکیبی سنگرگیری مدیریت محاسبه می­شود و از این نظر متمایز از پژوهش­های گذشته می­باشد که در آن­ها از شاخص­های منفرد برای سنجش سنگرگیری استفاده گردید. یافته‌های پژوهش نشان می‌دهد که از بین عوامل شرکتی چهار عامل مدیریت سود واقعی، مدیریت سود پیش­بین، مالکیت نهادی و استقلال هیات مدیره ارتباط معناداری با سنگرگیری مدیریتی دارند.

Keywords [فارسی]

  • اجتناب مالیاتی
  • حاکمیت شرکتی
  • سنگرگیری مدیریت
  • مدیریت سود
Aggarwal, R., Erel, I., Ferreira, M., & Matos, P. (2011). Does governance travel around the world? Evidence from institutional investors. Journal of Financial Economics, 100(1), 154-181.
Akbari, F., Salehi, M., & Bagherpour Vlashani, M. (2018). The effect of managerial ability on tax avoidance by classical and Bayesian econometrics in multilevel models: Evidence of Iran. International Journal of Emerging Markets, 13(6), 1656-1678. https://doi.org/10.1108/IJoEM-09-2017-0367
Alghamdi, A., & Salimi, A. (2012). Investigation into earnings management practices and the role of corporate governance and external audit in emerging markets: Empirical evidence from Saudi listed companies. Doctoral thesis, Durham University. The UK http://etheses.dur.ac.uk/3438/
Alves, M. B., & Leal, R. P. (2016). Board characteristics and compensation in Brazilian listed companies. International Journal of Disclosure and Governance, 13(4), 309-328. https://link.springer.com/article/10.1057/jdg.2016.3
Ammari, A., Ayed, N. B., & Ellouze, A. (2016). The interaction between Board Independence and CEO entrenchment on Tobin’s Q. International Journal of Business & Economic Strategy, 4, 1-13.
Atiqah, S., & Wahab, A. (2016). Earnings management, corporate governance and goodwill impairment among Malaysian listed companies (Unpublished doctoral dissertation). Universiti Utara Malaysia. http://etd.uum.edu.my/6146/
Baccar, A., Ben Mohamed, E., & Bouri, A. (2013). Managerial optimism, overconfidence and board characteristics: Towards a new role of corporate governance. Australian Journal of basic and applied sciences, 7(7), 287-301. https://www.researchgate.net/publication/283993747_Managerial_optimism_overconfidence_and_board_characteristics_towards_a_new_role_of_corporate_governance
Banko, J., Frye, M. B., Wang, W., & Whyte, A. M. (2013). Earnings management and annual general meetings: The role of managerial entrenchment. Financial Review, 48(2), 259-282. DOI: 10.1111/fire.2013.48.issue-2
266 (IJMS) Vol. 14, No. 1, Winter 2021
Baratiyan, S., & Salehi, M. (2013). The effect of management entrenchment on the equity capital in Iran. Pakistan Journal of Commerce and Social Sciences, 7(1), 19-26. http://www.jespk.net/publications/103.pdf
Bebchuk, L., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? Review of Financial Studies, 22(2), 783-827. http://dx.doi.org/10.2139/ssrn.593423
Ben-David, I., Graham, J. R., & Harvey, C. R. (2013). Managerial Miscalibration. Quarterly Journal of Economics, 128(4), 1547-1584. https://doi.org/10.3386/w16215
Beyer, M., Czarnitzki, D., & Kraft, K. (2012). Managerial ownership, entrenchment and innovation. Economics of Innovation and New Technology, 21(7), 679-699. https://doi.org/10.1080/10438599.2011.639978
Bliss, M. A. (2011), Does CEO duality constrain board independence? Some evidence from audit pricing. Accounting & Finance, 51(2), 361-380.
Brickley, J. A., & Zimmerman, J. L. (2010). Corporate governance myths: Comments on Armstrong, Guay, and Weber. Journal of Accounting and Economics, 50(2-3), 235-245.
Chakraborty, A., Rzakhanov, Z., & Sheikh, S. (2014). Antitakeover provisions, managerial entrenchment and firm innovation. Journal of Economics and Business, 72, 30-43.
Chin, S. F., Tang, K. B., & Ahmad, A. C. (2017). Financial restatement and firm performance in family controlled and CEO duality companies: evidence from post 2007 Malaysian Code of Corporate Governance. In SHS Web of Conferences (Vol. 34, p. 04006). EDP Sciences.. Retrieved from https://doi.org/10.1051/shsconf/20173404006
Chouaibi, J., & Ibrahim, N. B. (2015). Type of earnings management against managerial entrenchment and corporate governance mechanisms. International Journal of Behavioural Accounting and Finance, 5(2), 136-153.
Croci, E., Gonenc, H., & Ozkan, N. (2012). CEO compensation, family control, and institutional investors in Continental Europe. Journal of Banking & Finance, 36(12), 3318-3335.
The Effects of Corporate Characteristics on Managerial Entrenchment 267
Dalton, D. R., & Dalton, C. M. (2011). Integration of micro and macro studies in governance research: CEO duality, board composition, and financial performance. Journal of Management, 37(2), 404-411.
Dardour, A., & Boussaada, R. (2017). CEO compensation and state ownership in French listed companies. Management International, International Management/Gestión Internacional, 21(2), 135-151.
Datta, S., Iskandar-Datta, M., & Singh, V. (2013). Product market power, industry structure, and corporate earnings management. Journal of Banking and Finance, 37(8), 3273-3285.
Duellman, S., Hurwitz, H., & Sun, Y. (2015). Managerial overconfidence and audit fees. Journal of Contemporary Accounting & Economics, 11(2), 148-165.
Duru, A., Iyengar, R. J., & Zampelli, E. M. (2016). The dynamic relationship between CEO duality and firm performance: The moderating role of board independence. Journal of Business Research, 69(10), 4269-4277.
Elghuweel, M. I., Elghuweel, M. I., Ntim, C. G., Ntim, C. G., Opong, K. K., Opong, K. K., & Avison, L. (2017). Corporate governance, Islamic governance and earnings management in Oman: A new empirical insights from a behavioural theoretical framework. Journal of Accounting in Emerging Economies, 7(2), 190-224.
Florackis, C., & Ozkan, A. (2009). The impact of managerial entrenchment on agency costs: An empirical investigation using UK panel data. European Financial Management, 15(3), 497-528.
Geertsema, P., Lont, D. H., & Lu, H. (2016). Real earnings management around CEO turnovers. SSRN. https://ssrn.com/abstract=2700050 (accessed July 30 2018)
Gervais, S., Heaton, J. B., & Odean, T. (2011). Overconfidence, compensation contracts, and capital budgeting. The Journal of Finance, 66(5), 1735-1777.
Gonzalez, J. S., & Garcia-Meca, E. (2014). Does corporate governance influence earnings management in Latin American markets? Journal of Business Ethics, 121(3), 419-440.
268 (IJMS) Vol. 14, No. 1, Winter 2021
Griffin, P. A., Lont, D. H., & Sun, Y. (2008). Corporate governance and audit fees: Evidence of countervailing relations. Journal of Contemporary Accounting & Economics, 4(1), 18-49.
Halioui, K., Souhir, N., & Ben Abdelaziz, F. (2016). Corporate governance, CEO compensation and tax aggressiveness: Evidence from American firms listed on the NASDAQ 100. Review of Accounting and Finance, 15(4), 445- 462.
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2), 127-178.
Harada, K., & Nguyen, P. (2011). Ownership concentration and dividend policy in Japan. Managerial Finance, 37(4), 362-379.
Hassan, M., Hassan, S., Iqbal, A., & Khan, M. F. A. (2014). Impact of corporate governance on audit fee: Empirical evidence from Pakistan. World Applied Sciences Journal, 30(5), 645-651.
Hirshleifer, D. (1993). Managerial reputation and corporate investment decisions. Financial Management, 22(2), 145-160.
Hogan, B., & Jonas, G. A. (2016). The association between executive pay structure and the transparency of restatement disclosures. Accounting Horizons, 30(3), 307-323.
Humphery-Jenner, M., Lisic, L. L., Nanda, V., & Silveri, S. D. (2016). Executive overconfidence and compensation structure. Journal of Financial Economics, 119(3), 533-558.
Jiang, H., Habib, A., & Zhou, D. (2015). Accounting restatements and audit quality in China. Advances in Accounting, 31(1), 125-135.
Kamran, K., & Shah, A. (2014). The impact of corporate governance and ownership structure on earnings management practices: Evidence from listed companies in Pakistan. The Lahore Journal of Economics, 19(2), 27-70,
Karim, K., Robin, A., & Suh, S. (2016). Board structure and audit committee monitoring effects of audit committee monitoring incentives and board entrenchment on audit fees. Journal of Accounting, Auditing & Finance, 31(2), 249-276.
Khan, M., Srinivasan, S., & Liang Tan. (2017). Institutional ownership and corporate tax avoidance: New evidence. The Accounting Review, 92(2), 101-122.
Kiesewetter, D., & Manthey, J. (2017). The relationship between corporate governance and tax avoidance – Evidence from
The Effects of Corporate Characteristics on Managerial Entrenchment 269
Germany using a regression discontinuity design. SSRN. https://ssrn.com/abstract=2951699 (accessed April 8, 2018)
Kim, J. B., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics, 100(3), 639-662.
Kothari, S. P. Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of accounting and economics, 39(1), 163-197.
Lai, J. H., Lin, W. C., & Chen, L. Y. (2017). The influence of CEO overconfidence on ownership choice in foreign market entry decisions. International Business Review, 26(4), 774-785.
Li, K., Lu, L., Mittoo, U. R., & Zhang, Z. (2015). Board independence, ownership concentration and corporate performance—Chinese evidence. International Review of Financial Analysis, 41, 162-175
Li, S., & Perez, M. F. (2016). Executive compensation and the market valuation of managerial attributes. SSRN. https://ssrn.com/abstract=2547738.
Lin, Y. C., Wang, Y. C. Chiou, J. R., & Huang, H. W. (2014). CEO characteristics and internal control quality. Corporate Governance: An International Review, 22(1), 24-42.
Lin, Z. J., & Liu, M. (2013). The effects of managerial shareholding on audit fees: Evidence from Hong Kong. International Journal of Auditing, 17(3), 227-245.
Liu, Z. J., & Wang, Y. S. (2015). The relationship between governance and earnings management: An advanced empirical study of non-profit hospitals in Taiwan. Accounting and Finance Research, 4(2), 90-98.
Lovata, L. M., Schoenecker, T. S., & Costigan, M. L. (2016). CEO characteristics, compensation and real activity management in manufacturing companies. Academy of Accounting and Financial Studies Journal, 20(3), 103-114.
Ma, S., Naughton, T., & Tian, G. (2010). Ownership and ownership concentration: Which is important in determining the performance of China’s listed firms? Accounting & Finance, 50(4), 871-897.
270 (IJMS) Vol. 14, No. 1, Winter 2021
Mazur, M., & Salganik-Shoshan, G. (2016). Teaming up and quiet intervention: The impact of institutional investors on executive compensation policies. Journal of Financial Markets, 35, 65-83.
Minnick, K., & Noga, T. (2010). Do corporate governance characteristics influence tax management? Journal of Corporate Finance, 16(5), 703-718.
Mitra, S., Hossain, M., & Jain, P. (2013). Product market power and management’s action to avoid earnings disappointment. Review of Quantitative Finance and Accounting, 41(4), 585-610.
Mohamed, E. B., Baccar, A., Fairchild, R., & Bouri, A. (2012). Does corporate governance affect managerial optimism? Evidence from NYSE panel data firms. International Journal of Euro-Mediterranean Studies, 5(10), 41-56.
Mustapha, M., & Che Ahmad, A. (2011). Agency theory and managerial ownership: Evidence from Malaysia. Managerial Auditing Journal, 26(5), 419-436.
Nahar Abdullah, S., Zalina Mohamad Yusof, N., & Naimi Mohamad Nor, M. (2010). Financial restatements and corporate governance among Malaysian listed companies. Managerial Auditing Journal, 25(6), 526-552.
Nguyen, B. D. (2011). Ownership structure and board characteristics as determinants of CEO turnover in French-listed companies. Finance, 32(2), 53-89.
Otto, C. A. (2014). CEO optimism and incentive compensation. Journal of Financial Economics, 114(2), 366-404.
Pinto, M. B. & Leal, R. P. C. (2013). Ownership concentration, top management and board compensation. Revista de Administração Contemporânea, 17(3), 304-324.
Rakoto, P. (2012). Corporate Governance , Excessive Stock Option Compensation And Earnings Restatement : Evidence From Canada. In 2nd Annual International Conference On Accounting And Finance (AF2012) (Pp. 1 –6).
Rashid, A. (2015). Revisiting agency theory: Evidence of board independence and agency cost from Bangladesh. Journal of Business Ethics, 130(1), 181-198.
Reddy, K. Abidin, S., & You, L. (2015). Does corporate governance matter in determining CEO compensation in the publicly listed
The Effects of Corporate Characteristics on Managerial Entrenchment 271
companies in New Zealand? An empirical investigation. Managerial Finance, 41(3), 301-327.
Salas, J. M. (2010). Entrenchment, governance, and the stock price reaction to sudden executive deaths. Journal of Banking & Finance, 34(3), 656-666.
Salehi, A. A. & Kamardin, H. (2015). The Relationship between CEO dualities, directors’ independence and discretionary accruals in the Nigerian industrial goods companies. European Journal of Accounting, Auditing and Finance Research, 12(12), 1-16,
Salehi, M., & Mohammadi Moghadam, S. (2019). The relationship between management characteristics and firm performance. Competitiveness Review, 29(4), 440-461. https://doi.org/10.1108/CR-11-2018-0070
Salehi, M., Mahmoudabadi, M., & Adibian, M. (2018). The relationship between managerial entrenchment, earnings management and firm innovation, International Journal of Productivity and Performance Management, 67(9), 2089-2107. https://doi.org/10.1108/IJPPM-03-2018-0097
Scott, R. W. (2014). Do institutional investors alleviate agency problems by influencing payout policy in firms with poor investment opportunities? Accounting and Finance Research, 3(3), 43- 57, https://doi.org/10.5430/afr.v3n3p43
Shayan-Nia, M. Sinnadurai, P. Mohd-Sanusi, Z. & Hermawan, A. N. A. (2017). How efficient ownership structure monitors income manipulation? Evidence of real earnings management among Malaysian firms. Research in International Business and Finance, 41(13), 54-66.
Supangco, V. T. (2016). CEO duality and board independence. Philippine Management Review, 10(1), 59-67.
Supriyaningsih, S., & Fuad, F. (2017). The influence of audit committee characteristics on real earnings management. Jurnal Akuntansi Dan Auditing, 13(1), 61-79.
Tan, Q. M., Liu, P., Jing, M. Y., & Dong, X. F. (2015). Board Independence and Performance of Listed SMEsin China: Based on the Perspective of Concentrated Ownership. In Proceedings of the 21st International Conference on Industrial Engineering
272 (IJMS) Vol. 14, No. 1, Winter 2021
and Engineering Management 2014 (pp. 515-519). Atlantis Press, Paris.
Wang, X., & Yang, B. (2011). Management entrenchment, agency problem and audit fees. Asian Journal of Finance & Accounting, 3(1), 26-38.
Waweru, N. M., & Riro, G. K. (2013). Corporate governance, firm characteristics and earnings management in an emerging economy. Journal of Applied Management Accounting Research, 11(1), 43-64.
Young, A. (2016). How does governance affect tax avoidance? Evidence from shareholder proposals. Applied Economics Letters, 24(17), 1208-1213.
Yu-na, J. I. N. (2013). An Empirical Study on Board Characteristic and Real Earnings Management. Journal of Shijiazhuang University of Economics, (2), 10.
Zgarni, I., Halioui, K., & Zehri, F. (2014). Do the characteristics of board of directors constrain real earnings management in Emerging Markets? Evidence from the Tunisian Context. IUP Journal of Accounting Research & Audit Practices, 13(1), 46-61.
Zhao, Q., & Ziebart, D. A. (2017). Consequences of CEO overconfidence. Accounting and Finance Research, 6(2), 94-113.
Zhou, F., Wang, L., Zhang, Z., & An, Y. (2016). The impacts of accrual-based and real earnings management on executive compensation: Evidence from Chinese public firms in the private sector. Asia-Pacific Journal of Accounting & Economics, 1(2), 128-144.