Earnings Management and Ownership Structure: Evidence from Sri Lanka

Abstract

The main purpose of this study is to examine the impact of ownership structure on earnings management considering listed firms at the Colombo Stock Exchange - Sri Lanka during the period of 2013/14 to 2017/18. Earnings management is measured using discretionary accruals as a proxy based on Kothari, Leone and Wesley (2005) performance adjusted discretionary accrual model, while taking into account the four types of ownership structures, viz, ownership concentration, managerial ownership, institutional ownership and foreign ownership. The study employed pooled OLS regression. The findings of the study reveal that managerial and institutional ownership structures are effective in constraining accruals manipulations. Conversely, foreign ownership is found to have a significantly positive association with earnings management. The outcomes of the paper further widen the literature related to understanding the influences of ownership structure on earnings management in the context of emerging economies.