Earning management of oil and gas and metal and metallurgy companies in Russia

The purpose of research is to identify the relationship between the ownership and earning management on a sample of companies of the oil and gas and metal and metallurgy industries in Russia.

Methodology. Panel data regression analysis was conducted to test research hypothesis. Research covers the data for 2010-2016 periods in regard to two industries – oil and gas production and refinery, ferrous and non-ferrous metallurgy. The theoretical and empirical research suggests that the ownership structure plays an important role for the company performance following the studies of Liu and Lu [1], Ali Shah, Ali Butt and Hasan [2] and Hassan [3].

The originality / value of the research. This study examines the impact of the degree of government and foreign ownership, and the size of entities on corporate earning management measurement, up to our best knowledge there is limited studies conducted on this subject.

Findings. According to Strukova [4], Vidyapin and Stepanov [5], Russia heavily relies on the export oriented industries like oil/gas and metal/metallurgy. Therefore, understanding of the corporate governance determinants of financial reporting becomes an important issue. The paper finds that foreign and state ownership together with size of entities are factors which reduce the effect of earning management.

1. Liu, Q. and Lu, Z. J. (2007). Corporate governance and earnings management in the Chinese listed companies: A tunneling perspective. Journal of Corporate Finance, 13(5), 881-906.

2. Ali Shah, S. Z., Butt, S. A. and Hassan, A. (2009). Corporate governance and earnings management an empirical evidence form Pakistani listed companies. European Journal of Scientific Research, 26(4), 624-638.

3. Hassan, S. U. (2013). Financial Reporting Quality, Does Monitoring Characteristics Matter? An Empirical Analysis of Nigerian Manufacturing Sector. The Business & Management Review, 3(2), 147-161.

4. Strukova, E. (2012, August 13). Stavka na gigantov: chem Rossiya zamenit istoshchivshiesya neftegazovye reki. RBC economics. Retrieved June 21, 2019, from https://www.rbc.ru/economics/13/08/2012/5703fb469a7947ac81a6aad5 (In Russian).

5. Vidyapin, V. and Stepanov, M. (2000). Ekonomicheskaya geografiya Rossii. INFRA-M, Moscow, 533 p. (In Russian).

6. Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 2(29), 193-228.

7. Campello, M., Graham, J. R. and Harvey, C. R. (2011). The real effects of financial constraints: evidence from a financial crisis. Journal of Financial Economics, 3(97), 470-487.

8. Abbadi, S. S., Hijazi, Q. F. and Al-Rahahleh, A. S. (2016). Corporate Governance Quality and Earnings Management: Evidence from Jordan. Australasian Accounting, Business and Finance Journal, 10(2), 54-75.

9. Li, F. (2008). Annual report readability, current earnings and earning persistence. Journal of accounting and economics, 45, 221-247.

10. Burgstahler, D. I. and Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 1(24), 99-126.

11. Musfiqur, R., Moniruzzaman, M. and Sharif, J. (2013). Techniques, motives and controls of earnings management. International Journal of Information Technology and Business Management, 11(1), 26-31.

12. Yang, W. S., Chun, L. S. and Ramadili, S. M. (2009). The Effect of Board Structure and Institutional Ownership Structure on Earnings Management. International Journal of Economics and Management, 3(2), 332–353.

13. Healey, P., Wahlen, J. (1998). A Review of the Earnings Management Literature and Its Implications for Standard Setting. Corporate Governance & Accounting eJournal. Retrieved February 20, 2019, from https://ssrn.com/abstract=156445 or http://dx.doi.org/10.2139/ssrn.156445.

14. Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335-370.

15. Eisenhardt, K. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57-74, DOI: 10.5465/AMR.1989.4279003

16. Gul, F. A., Chen, C. J. and Tsui, J. (2003). Discretionary Accounting Accruals, Managers’ Incentives and Audit Fees. Contemporary accounting research, 20(3), 441-464, DOI: 10.1506/686E-NF2J-73X6-G540.

17. Cohen, D., Dey, A. and Lys, T. (2008). Real and accruals-based earnings management in the Pre- and Post-Sarbanes-Oxley Periods. The Accounting Review, 83(3), 757-787, DOI: 10.2308/accr.2008.83.3.757.

18. Jensen, M. and Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 4(3), 305-360.

19. Chung, R., Ho, S. and Kim, J. B. (2004). Ownership structure and the pricing of discretionary accruals in Japan. Journal of International Accounting, Auditing and Taxation, 1(13), 1-20, DOI: 10.1016/j.intaccaudtax.2004.02.003.

20. Dechow, P. M., Sloan, R. G. and Sweeney, A. P. (1996). Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC. Contemporary Accounting Research, 13(1), 1-36.

21. Fischer, M. and Rosenzweig, K. (1995). Attitudes of students and accounting practitioners concerning the ethical acceptability of earnings management. Journal of Business Ethics, 14(6), 433-444, DOI: 10.1007/BF00872085.

22. Gedajlovic, E. R. and Shapiro, D. M. (1998). Management and ownership effects: Evidence from five countries. Strategic Management Journal, 19(6), 533-553.

23. Thomsen, S. and Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21(6), 689-705.

24. Dahlquist, M. and Robertsson, G. (2001). Direct foreign ownership, institutional investors, and firm characteristics. Journal of Financial Economics, 59(3), 413-440.

25. Bushee, B. (2001). Do Institutional Investors Prefer Near-term Earnings Over Long-run Value? Contemporary Accounting Research, 18(2), 207-246.

26. Grinblatt, M. and Keloharju, M. (2000). The investment behavior and performance of various investor types: A study of Finland’s unique data set. Journal of Financial Economics, 55(1), 43-67.

27. Dvorak, T. (2005). Do domestic investors have an informational advantage? Evidence from Indonesia. The Journal of Finance, 60(2), 817-839.

28. Warfield, T. D., Wild, J. J. and Wild, K. L. (1995). Managerial ownership accounting choices, and informativeness of earnings’. Journal of Accounting and Economics, 20(1), 61-91, DOI: 10.1016/0165-4101(94)00393-J.

29. Denis, D. K. and McConnell, J. (2003). International corporate governance. Journal of Financial and Quantitative Analysis, 38(1), 1-36.

30. Balsam, S., Bartov, E. and Marquardt, C. (2002). Accruals management, investor sophistication, and equity valuation: Evidence from 10-Q filings. Journal of Accounting Research, 40(4), 987−1012.

31. Pound, J. (1988). Proxy contest and the efficiency of shareholder oversight. Journal of Financial Economics, 20(1-2), 237–265.

32. Khan, H. A. (1999). Corporate governance of family businesses in Asia: What’s right and what’s wrong? ADBI Working Paper, 3, Retrieved July 5, 2019, from https://www.adb.org/sites/default/files/publication/157212/adbi-rp3.pdf.

33. Bhojraj, S., Hribar, P., Picconi, M. and McInnis, J. (2009). Making sense of cents: an examination of firms that marginally miss or beat analyst forecasts. The Journal of Finance, 64(5), 2361–2388.

34. Fan, J. and Wong, T. (2002). Corporate Ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33(3), 401-425.

35. Lemmon, M. L. and Lins, K. (2003). Ownership structure, corporate governance, and firmvalue: Evidence from the East Asian financial crisis. The Journal of Finance, 58(4), 1445-1468.

36. Yeo, G., Tan, P., Ho, K. and Chen, S. (2002). Corporate Ownership Structure and the informativeness of Earnings. Journal of Business Finance & Accounting, 29(7-8), 1023-1046, DOI: 10.1111/1468-5957.00460.

37. Roe, M. (1991). A Political Theory of American Corporate Finance. Columbia Law Review, 91(1), 10–67, DOI: 10.2307/1122856.

38. Abed, S., Al-Attar, A. and Suwaidan, M. (2012). Corporate governance and earnings management: Jordanian evidence. International Business Research, 5(1), 216-225, DOI: 10.5539/ibr.v5n1p216.

39. Dayha, J., McConnell, J. and Travlos, N. (2002). The Cadbury Committee, corporate performance, and top management turnover. Journal of Finance, 57(1), 461-484, DOI: 10.1111/1540-6261.00428.

40. Swastika, D. L. T. (2013). Corporate governance, firm size, and earning management: Evidence in Indonesia stock exchange. IOSR Journal of Economics and Finance (IOSR-JEF), 10(4), 77-82.

41. González, J. S. and García-Meca, E. (2014). Does corporate governance influence earnings management in Latin American markets? The Journal of Business Ethics, 121(3), 419-440.

42. Yermack, D. (2004). Remuneration, retention and reputation incentives for outside directors. The Journal of Finance, 59(5), 2281–2308.

43. Anderson, R. and Reeb, D. (2003). Founding-family Ownership and Firm Performance: Evidence from the S&P 500. The Journal of Finance, 58(3), 1301-1328, DOI: 10.1111/1540-6261.00567.

44. The Moscow Stock Exchange website. Retrieved June 21, 2019, from http://moex.com/ (In Russian).

45. Center of Disclosure of Corporate Information website. Retrieved June 21, 2019, from http://www.edisclosure.ru (In Russian).

46. The database of entities – List-Org website. Retrieved June 21, 2019, from https://www.list-org.com/ (In Russian).

47. Information service of the Moscow Center for Economic Security – OGRN.ru. Retrieved June 21, 2019, from https://www.ogrn.ru/ (In Russian).