Date of Publication

4-23-2023

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Applied Economics major in Financial Economics

College

School of Economics

Department/Unit

Economics

Thesis Advisor

Angelo A. Unite
Mariel Monica R. Sauler

Defense Panel Chair

Angelo A. Unite

Defense Panel Member

Mariel Monica R. Sauler

Abstract/Summary

The practice of real earnings management has become more prevalent as it is less prone to regulatory scrutiny. However, much of the literature has focused on accrual-based earnings management in the context of developed countries. This study analyzes the impact of corporate governance characteristics on the level of real earnings management employed by firms in the Philippines. We use firm-year data on non-financial PSE-listed firms from 2010-2019 and alternative performance-matched real earnings management measures using abnormal cash flows, abnormal discretionary expenditures, abnormal production costs, and abnormal sales, general, and administrative expenses. Moreover, we use board size, board independence, board financial expertise, multiple directorships, managerial ownership board, and CEO duality to represent corporate governance characteristics. We then estimate our model using standard panel regression with lagged independent variables to account for potential endogeneity issues. Among the corporate governance characteristics, we find that only board independence shows a significant positive relationship with real earnings management through cash flow from operations when performance-matched real earnings management measures are used. However, we find that when the traditional or non-performance matched measures are used, all corporate governance characteristics significantly affects certain real earning management practices. The result that only board independence affects real earnings management after performance matching suggests that the impact of all other corporate governance characteristics on the traditional REM measures merely reflects a firm’s abnormal real activities that are a rational response to economic shocks to firm value. Overall, it appears that corporate governance mechanisms among Philippine publicly listed companies are still weak in mitigating real earnings management practices due to opportunistic managerial behaviors.

Abstract Format

html

Language

English

Format

Electronic

Keywords

Earnings management—Philippines; Corporate governance—Philippines

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Embargo Period

4-24-2025

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Available for download on Thursday, April 24, 2025

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