Corporate ownership structure and earnings management: evidence from Nordic listed companies

This study examines the relationship between corporate ownership structure and earnings management in Nordic countries. Nordic listed companies have similar ownership structures, which are characterized by a high degree of ownership concentration. Existing literature shows that ownership structure may provide an incentive to manage earnings, but on the other hand, it can restrain earnings management practices. Thus, the purpose of this study is to investigate whether and how ownership structure affects earnings management in Nordic countries. Ownership structure is measured with four variables: ownership concentration, state ownership, foreign ownership and managerial ownership. As a proxy for accruals-based earnings management, the modified Jones model (1991) developed by Dechow et al. (1995) is used. Real earnings management is measured using Roychowdhury’s (2006) combined measure of two earnings management proxies. The sample consists of 195 non-financial Nordic listed companies for a five-year period, from 2015 to 2019. The results suggest that when the largest shareholder gets more control, earnings management increases. Interestingly, when the control for the five largest shareholders increases, the effect is opposite, earnings management decreases. Managerial ownership decreases earnings management in the sample firms and thus, improves earnings quality. The results show insignificant role for states and foreign owners in earnings management practices.