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close this section of the library Naidu, Dharmendra

View the PDF document Shareholder concentration and earnings management in listed corporations in an emerging market
Author:Naidu, Dharmendra
Institution: University of the South Pacific.
Award: M.Com
Date: 2012
Call No.: pac In Process
BRN: 1190539
Copyright:Under 10% of this thesis may be copied without the authors written permission

Abstract: The ownership structure of the companies in emerging stock markets is concentrated. The high level of shareholder concentration for the South Pacific Stock Exchange (SPSE) companies is unique. The alignment and entrenchment effects guide the relationship between shareholder concentration and earnings management. This thesis investigates the strength of shareholder concentration in constraining earnings management using archival data of the SPSE listed companies for the period 1986 to 2010. The results suggest that high level of shareholder concentration is associated with high level of earnings management for companies listed on the SPSE. This result implies that although the concentrated shareholders of the SPSE companies are able to minimize owner – manager agency problem due to the alignment effect, they create a majority – minority shareholder agency problem due to entrenchment effect. Additional results indicate that large boards are effective in mitigating the effects of shareholder concentration on earnings management. In shareholder concentrated firms, where owner – manager agency problem is minimal, the large independent boards are able to minimize the majority – minority shareholder agency problem. Unlike firms with dispersed ownership, shareholder concentrated firms face a different form of agency problem indicating different influences on its corporate governance structure. As such, this study contributes to the extant literature on corporate governance and suggests new avenues for future research on corporate governance to protect the interests of the minority shareholders in shareholder concentrated firms. This research offers insights to policy makers interested in enhancing corporate governance for firms with high levels of shareholder concentration, an important vii variable that is very prevalent in developing countries with emerging stock markets. The descriptive results of this thesis indicate that the internal and external corporate governance structures of the SPSE companies are weak. However, there is scope to strengthen the internal governance structures to protect the interests of the minority shareholders. Thus, policy makers should strengthen the corporate governance code and the financial regulations for companies with high level of shareholder concentration by ensuring large boards with majority independent directors.
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