Country level governance and earnings management: new evidence from North-European countries Online publication date: Wed, 09-Nov-2022
by Nafisa Ahmad; Tanzina Akhter; Md. Abul Kalam Azad
International Journal of Work Innovation (IJWI), Vol. 3, No. 2, 2022
Abstract: The extent, to which formal and informal corporate governance structures are used, varies around the world. In spite of these differences in corporate governance practices around the globe, existing studies have shown a gap in understanding the impact of country level governance (CGI) on firm's earnings management (EM). To better understand the dynamics of earnings manipulation we identify possible proxies of EM. Drawing attention to North Europe, we examine influence of CLG on EM amongst non-financial institutions. Our study uses data from Heritage Foundation's index of economic freedom (IEF) to control for CGI index. The descriptive findings from our investigation shows that the impact of CGI on EM is still that of an infant level in this region. The GMM two-step system estimator is also used for robustness check for our model. Nonetheless, we find a growing influence of CGI on EM practices in the region's company annual reports.
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