Earnings Management and Ownership Structure

Earnings management research has a long and rich history. The agency conflict, incentives, rationalization, opportunity plus having the capability among the managers to manipulate the financial statement lead them to commit fraud. The loopholes in the standards or the deviation from real operational activities promote this situation to prolong. According to the agency theory, separation of ownership and control gives rise to manager's incentives to select and apply accounting estimates and techniques that can increase their own wealth. This issue has become more important in recent years as more firms are listed on stock exchanges as public firms. In this review, we emphasize studies that advance the managerial understanding of the earnings management and agency theory. This paper aims at reviewing on some major conducted research from various countries, examining relationships between ownership structure (and its subsets) and earnings management. The results of the paper further extend the literatures in understanding the determination of the influences of ownership structure and earnings management.