The Dynamic Endogeneity Issue between Corporate Ownership Structure and Real-Based Earnings Manipulation in an Emerging Market: Advanced Dynamic Panel Model
Abstract
:1. Introduction
2. Literature Review and Hypothesis Development
2.1. Managerial Ownership and Earnings Management
2.2. Family Ownership and Earnings Management
2.3. Institutional Ownership and Earnings Management
2.4. Governmental Ownership and Earnings Management
3. Research Methodology and Data Analysis
3.1. Data
3.2. Variables Measurement
+ β6 ROEjt + β7 LIQjt + β8 Levjt + β9 Gearjt + β10 Sizejt + β11 ATjt + β12 OCjt + β13 EMFLEXjt + εt
3.2.1. Dependent Variables: REM Measurement Models
3.2.2. Main Independent Variables
Managerial Ownership
Family Ownership
Institutional Ownership
Government Ownership
4. Results and Discussion
4.1. Descriptive Statistics
4.2. Multicollinearity Diagnostics
4.3. Results of System Generalized method of Moment
VARIABLES | ABCFO | ABCFO | ABCFO | ABCFO |
---|---|---|---|---|
L.ABCFO | −0.0430 *** | −0.0486 *** | −0.0479 *** | −0.0335 *** |
(0.0111) | (0.0116) | (0.00987) | (0.00812) | |
Mag | 0.000107 * | |||
(5.72 × 10−5) | ||||
Fam | 0.000717 *** | |||
(0.000246) | ||||
Gov | −0.00020 *** | |||
(4.00 × 10−5) | ||||
Inst | 0.000133 * | |||
(7.05 × 10−5) | ||||
ROA | 0.0613 | 0.0729 | 0.0147 | −0.308 |
(0.146) | (0.155) | (0.232) | (0.227) | |
ROE | 0.137 ** | 0.123 *** | 0.106 | 0.206 *** |
(0.0563) | (0.0441) | (0.0911) | (0.0790) | |
Liq | 0.00571 ** | 0.00539 ** | 0.00768 *** | 0.00875 *** |
(0.00291) | (0.00225) | (0.00250) | (0.00206) | |
Lev | −0.0194 | 0.00474 | −0.0169 | 0.0205 |
(0.0281) | (0.0368) | (0.0395) | (0.0270) | |
Gear | −0.0155 * | −0.0212 ** | −0.0223 *** | −0.0238 *** |
(0.00820) | (0.00873) | (0.00780) | (0.00590) | |
Size | 0.0444 *** | 0.0376 *** | 0.0532 *** | 0.0459 *** |
(0.00937) | (0.0111) | (0.00782) | (0.00901) | |
Asstan | −0.121 *** | −0.149 *** | −0.180 *** | −0.190 *** |
(0.0296) | (0.0328) | (0.0264) | (0.0215) | |
OC | −0.0524 *** | −0.0537 *** | −0.0317 *** | −0.0416 *** |
(0.00925) | (0.0136) | (0.0101) | (0.0132) | |
Emflex | 0.0236 | 0.0237 | 0.00318 | 0.0428 * |
(0.0182) | (0.0228) | (0.0225) | (0.0239) | |
Constant | 0.108 | 0.159 | −0.0117 | 0.0567 |
(0.0773) | (0.103) | (0.0558) | (0.0824) | |
Observations | 702 | 702 | 702 | 702 |
Number of firms | 78 | 78 | 78 | 78 |
Number of inst | 122 | 122 | 122 | 122 |
Hansen test (p-val) | 0.999 | 0.999 | 0.998 | 0.999 |
AR (2) test (p-val) | 0.348 | 0.344 | 0.330 | 0.341 |
VARIABLES | ABPROD | ABPROD | ABPROD | ABPROD |
---|---|---|---|---|
L. ABPROD | 0.0419 *** | 0.0615 *** | 0.0460 *** | 0.0550 *** |
(0.00905) | (0.0163) | (0.0100) | (0.0126) | |
Mag | −0.000472 *** | |||
(8.00 × 10−5) | ||||
Fam | (−7.73 × 10−5) | |||
(0.000189) | ||||
Gov | 0.000416 *** | |||
(4.55 × 10−5) | ||||
Inst | (2.21 × 10−5) | |||
(6.04 × 10−5) | ||||
ROA | −0.556 ** | −0.340 | −0.484 * | −0.371 |
(0.262) | (0.238) | (0.248) | (0.265) | |
ROE | 0.158 | 0.0515 | 0.224 * | 0.0720 |
(0.118) | (0.108) | (0.128) | (0.121) | |
Liq | 0.00122 | 0.00345 | 0.00181 | 0.00495 |
(0.00340) | (0.00239) | (0.00310) | (0.00358) | |
Lev | 0.119 *** | 0.0130 | 0.133 *** | 0.145 *** |
0.0419 *** | (0.0311) | (0.0351) | (0.0357) | |
Gear | (0.00905) | 0.0460 *** | 0.0116 | 0.00663 |
(0.0146) | (0.00980) | (0.0135) | (0.0160) | |
Size | −0.0545 *** | −0.0474 *** | −0.0776 *** | −0.0518 *** |
(0.0145) | (0.0113) | (0.0162) | (0.0150) | |
Asstang | 0.0988 *** | 0.0434 | 0.0822 ** | 0.0271 |
(0.0370) | (0.0334) | (0.0362) | (0.0427) | |
OC | 0.164 *** | 0.182 *** | 0.148 *** | 0.162 *** |
(0.0104) | (0.0186) | (0.0218) | (0.0164) | |
Emflex | −0.0191 | −0.0335 | 0.0350 | 0.0115 |
(0.0460) | (0.0372) | (0.0325) | (0.0409) | |
Constant | −0.482 *** | −0.586 *** | −0.298 ** | −0.493 *** |
(0.102) | (0.125) | (0.152) | (0.136) | |
Observations | 702 | 702 | 702 | 702 |
Number of firms | 78 | 78 | 78 | 78 |
Hansen test (p-val) | 0.999 | 0.998 | 0.999 | 0.999 |
AR (2) test (p-val) | 0.585 | 0.539 | 0.737 | 0.597 |
VARIABLES | ABDIX | ABDIX | ABDIX | ABDIX |
---|---|---|---|---|
L. ABDISCX | −0.256 *** | −0.228 *** | −0.250 *** | −0.256 *** |
(0.0134) | (0.00858) | (0.00947) | (0.00850) | |
Mag | −3.51 × 10−5 *** | |||
(1.22 × 10−5) | ||||
Fam | −9.84 × 10−5 *** | |||
(2.89 ) | ||||
Gov | 7.46 × 10−5 *** | |||
(1.30 × 10−5) | ||||
Inst | −7.96 × 10−5 *** | |||
(1.19 × 10−5) | ||||
ROA | 0.0712 | 0.0217 | 0.118 ** | 0.00987 |
(0.0563) | (0.0605) | (0.0559) | (0.0638) | |
ROE | −0.0167 | 0.0162 | −0.0503 * | 0.00562 |
(0.0278) | (0.0300) | (0.0296) | (0.0321) | |
Liq | −0.000512 | −0.000244 | −0.00113 * | 0.000216 |
(0.000645) | (0.000363) | (0.000632) | (0.000641) | |
Lev | 0.0279 *** | 0.0409 *** | 0.0183 | 0.0190 * |
(0.00833) | (0.00974) | (0.0132) | (0.0106) | |
Gear | −0.0187 *** | −0.0177 *** | −0.0176 *** | −0.0183 *** |
(0.00255) | (0.00285) | (0.00298) | (0.00212) | |
Size | −0.0137 *** | −0.0143 *** | −0.0117 *** | −0.0120 *** |
(0.00411) | (0.00189) | (0.00301) | (0.00241) | |
Asstan | −0.0288 ** | −0.0149 * | −0.0378 *** | −0.0251 ** |
(0.0113) | (0.00762) | (0.00737) | (0.0123) | |
OC | 0.0637 *** | 0.0549 *** | 0.0613 *** | 0.0577 *** |
(0.00570) | (0.00536) | (0.00456) | (0.00501) | |
Emflex | −0.0316 ** | −0.0183 * | −0.0208 *** | −0.0176 ** |
(0.0124) | (0.00969) | (0.00516) | (0.00816) | |
Constant | −0.182 *** | −0.146 *** | −0.172 *** | −0.167 *** |
(0.0348) | (0.0323) | (0.0252) | (0.0270) | |
Observations | 702 | 702 | 702 | 702 |
Number of firms | 78 | 78 | 78 | 78 |
Hansen test (p-val) | 1.000 | 1.000 | 0.999 | 1.000 |
AR (2) test (p-val) | 0.239 | 0.273 | 0.245 | 0.254 |
VARIABLES | RM1 | RM1 | RM1 | RM1 |
---|---|---|---|---|
L. RM1 | 0.0395 *** | 0.0434 *** | 0.0315 ** | 0.0313 ** |
(0.0119) | (0.0112) | (0.0147) | (0.0144) | |
Mag | −0.000702 *** | |||
(0.000120) | ||||
Fam | 0.000450 | |||
(0.000360) | ||||
Gov | 0.000496 *** | |||
(8.10 × 10−5) | ||||
Inst | −0.000194 *** | |||
(6.86 × 10−5) | ||||
ROA | −0.614 | −0.439 | −0.543 | −0.564 |
(0.387) | (0.398) | (0.370) | (0.347) | |
ROE | 0.0204 | −0.101 | −0.00583 | 0.0283 |
(0.151) | (0.155) | (0.134) | (0.135) | |
Liq | −0.00265 | −0.00612 | −0.00918 | −0.00163 |
(0.00649) | (0.00511) | (0.00599) | (0.00450) | |
Lev | 0.0530 | 0.0308 | 0.0808 * | 0.0158 |
(0.0481) | (0.0664) | (0.0465) | (0.0465) | |
Gear | 0.0652 *** | 0.0714 *** | 0.0686 *** | 0.0705 *** |
(0.0129) | (0.0185) | (0.0120) | (0.00981) | |
Size | −0.0968 *** | −0.115 *** | −0.0862 *** | −0.0957 *** |
(0.0216) | (0.0218) | (0.0218) | (0.0191) | |
Asstan | 0.245 *** | 0.270 *** | 0.290 *** | 0.326 *** |
(0.0542) | (0.0638) | (0.0585) | (0.0695) | |
OC | 0.201 *** | 0.203 *** | 0.186 *** | 0.186 *** |
(0.0226) | (0.0340) | (0.0262) | (0.0237) | |
Emflex | 0.0600 | 0.0656 | −0.0269 | 0.0406 |
(0.0435) | (0.0593) | (0.0690) | (0.0480) | |
Constant | −0.549 *** | −0.494 *** | −0.551 *** | −0.501 *** |
(0.116) | (0.156) | (0.134) | (0.150) | |
Observations | 702 | 702 | 702 | 702 |
Number of firms | 78 | 78 | 78 | 78 |
Hansen test (p-val) | 0.999 | 0.999 | 0.997 | 0.999 |
AR (2) test (p-val) | 0.742 | 0.700 | 0.730 | 0.690 |
VARIABLES | RM2 | RM2 | RM2 | RM2 |
---|---|---|---|---|
L. RM2 | −0.00176 | 0.00526 | −0.0117 | −0.00151 |
(0.00907) | (0.0119) | (0.00993) | (0.0101) | |
Mag | −4.69 × 10−6 | |||
(4.24 × 10−5) | ||||
Fam | −0.000507 | |||
(0.000340) | ||||
Gov | 0.000168 *** | |||
(6.46 × 10−5) | ||||
Inst | −0.000148 *** | |||
(5.12 × 10−5) | ||||
Roa | 0.148 | 0.0565 | −0.141 | 0.222 |
(0.160) | (0.178) | (0.216) | (0.188) | |
ROE | −0.242 *** | −0.197 *** | −0.101 | −0.258 *** |
(0.0604) | (0.0716) | (0.0920) | (0.0744) | |
Liq | −0.00461 * | −0.00212 | −0.00244 | −0.00681 ** |
(0.00275) | (0.00212) | (0.00539) | (0.00270) | |
Lev | −0.00226 | −0.0121 | 0.00605 | −0.0621 ** |
(0.0244) | (0.0586) | (0.0535) | (0.0256) | |
Gear | 0.0358 *** | 0.0408 *** | 0.0363 *** | 0.0464 *** |
(0.00650) | (0.0138) | (0.0114) | (0.00852) | |
Size | −0.0291 *** | −0.0351 ** | −0.0349 *** | −0.0249 ** |
(0.00922) | (0.0146) | (0.00527) | (0.00992) | |
Asstan | 0.142 *** | 0.172 *** | 0.178 *** | 0.166 *** |
(0.0178) | (0.0410) | (0.0341) | (0.0170) | |
OC | −0.0210 * | −0.0272 ** | −0.0383 *** | −0.0284 ** |
(0.0120) | (0.0131) | (0.0112) | (0.0133) | |
Emflex | 0.0176 | 0.00491 | 0.0390 | −0.00602 |
(0.0202) | (0.0171) | (0.0345) | (0.0220) | |
Constant | 0.124 | 0.183 | 0.216 *** | 0.149 |
(0.0931) | (0.122) | (0.0733) | (0.104) | |
Observations | 702 | 702 | 702 | 702 |
Number of firms | 78 | 78 | 78 | 78 |
Hansen test (p-val) | 1.000 | 0.999 | 0.999 | 0.999 |
AR (2) test (p-val) | 0.349 | 0.353 | 0.343 | 0.349 |
VARIABLES | RM3 | RM3 | RM3 | RM3 |
---|---|---|---|---|
L. RM3 | 0.0401 *** | 0.0406 *** | 0.0305 *** | 0.0241 |
(0.0147) | (0.0150) | (0.00988) | (0.0169) | |
Mag | −0.000384 *** | |||
(0.000133) | ||||
Fam | −0.000164 | |||
(0.000388) | ||||
Gov | 0.000554 *** | |||
(7.88 × 10−5) | ||||
Inst | −0.000186 * | |||
(9.67 × 10−5) | ||||
Roa | −0.535 | −0.766 * | −0.743 * | −0.600 |
(0.383) | (0.419) | (0.386) | (0.415) | |
ROE | −0.0303 | 0.0604 | 0.101 | 0.0420 |
(0.145) | (0.166) | (0.137) | (0.152) | |
Liq | −0.00569 | 0.000931 | −0.00122 | −0.00118 |
(0.00432) | (0.00671) | (0.00548) | (0.00644) | |
Lev | 0.0605 | 0.0625 | 0.0788 * | 0.0312 |
(0.0525) | (0.0555) | (0.0471) | (0.0429) | |
Gear | 0.0825 *** | 0.0676 *** | 0.0686 *** | 0.0863 *** |
(0.0141) | (0.0181) | (0.0173) | (0.0107) | |
Size | −0.0715 ** | −0.0714 *** | −0.0618 *** | −0.0671 *** |
(0.0288) | (0.0275) | (0.0173) | (0.0260) | |
Asstan | 0.298 *** | 0.263 *** | 0.378 *** | 0.333 *** |
(0.0516) | (0.0630) | (0.0692) | (0.0610) | |
OC | 0.174 *** | 0.159 *** | 0.153 *** | 0.150 *** |
(0.0300) | (0.0324) | (0.0243) | (0.0360) | |
Emflex | −0.0297 | −0.0169 | −0.0496 | 0.00348 |
(0.0689) | (0.0648) | (0.0510) | (0.0707) | |
Constant | −0.605 *** | −0.518 *** | −0.576 *** | −0.528 ** |
(0.201) | (0.197) | (0.160) | (0.229) | |
Observations | 702 | 702 | 702 | 702 |
Number of firms | 78 | 78 | 78 | 78 |
Hansen test (p-val) | 0.998 | 0.999 | 0.998 | 0.997 |
AR (2) test (p-val) | 0.487 | 0.512 | 0.490 | 0.461 |
Expected Sign | ABCFO | ABOPRO | ABDISX | RM1 | RM2 | RM3 | |
---|---|---|---|---|---|---|---|
Ownership Structure | |||||||
Mag. own | + | Positive and significant at 10% | Negative and significant at 1% | Negative and significant at 1% | Negative and significant at 1% | Negative and non-sig | Negative and significant at 1% |
Fam. Own | − | Positive and significant at 1% | Negative and non-sig | Negative and significant at 1% | Positive and non-significant | Negative and non-sig | Negative and non-sig |
Inst. Own | − | Positive and significant at 10% | Positive and non-sig | Negative and significant at 1% | Negative and significant at 1% | Negative and significant at 1% | Negative and significant at 1% |
Gov. Own | + | Negative and significant at 1% | Positive and sig at 1% | Positive and significant at 1% | Positive and significant at 1% | Positive and significant at 1% | Positive and significant at 10% |
4.4. Robustness Check and Sensitivity Analysis
5. Summary and Conclusions
Author Contributions
Funding
Data Availability Statement
Conflicts of Interest
References
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Label | Measure | Source | |
---|---|---|---|
Independent variables | |||
Family ownership | FAMOWN | The proportion of total shares held by family members. | Annual Disclosure Books By EGX and ownership structure reports |
Institutional ownership | INSTOWN | The proportion of outstanding shares owned by institutional investors at the end of its financial year. | |
Managerial ownership | MANOWN | The proportion of shares possessed by managers scaled by the total number of ordinary shares. | |
Governmental ownership | GOVOWN | The total number of ordinary shares held by the government scaled by the total number of ordinary shares of a firm at the end of its financial year. | |
Dependent Variable | |||
Real Earnings Management | REM | Abnormal levels of cash flow from operations (ABCFO). Abnormal level from the sum of selling and marketing expenses and general and administrative expenses (ABDISCX). Abnormal level from the sum of cost of goods sold and change in inventory (ABPROD). RM1 = −Abnormal cash flows from operations + Abnormal production costs. RM2 = −Abnormal cash flows from operations − Abnormal discretionary expenditures. RM3 = −Abnormal cash flows from operations + Abnormal production costs − Abnormal discretionary expenditures. | Data stream and financial Statements |
Control variables | |||
Firm size | SIZE | The natural log of a company’s assets at the end of its fiscal year. | Data stream and financial statements |
Liquidity | LIQ | Ratio of current assets to current liabilities. | |
Performance | ROA | It is the net income less preferred dividends scaled by average assets at the ending of the year. | |
Performance | ROE | It is the net income multiplied by average total equity at the end of the year. | |
Capital structure (Gearings) | GEAR | At the end of the fiscal year, total debt—both short-term and long-term—is divided by total equity. | |
Leverage | LEV | At the end of its fiscal year, the book value of total debt, total debt—both short-term and long-term—divided by total assets. | |
Assets Tangibility | ASSTAN | The net property plant and equipment is a percentage of total assets. | |
Operating Cycle | OC | The logarithm of the inventory and receivables periods added together. | |
Earnings Management Flexibility | EMFLEX | Total inventories and receivables scaled by total assets. |
N | Minimum | Maximum | Mean | Std. Deviation | Skewness | Kurtosis | |
---|---|---|---|---|---|---|---|
FAM | 780 | 0 | 23.6 | 3.756564 | 7.072643 | 1.793 | 1.93 |
MAG | 780 | 0 | 72 | 16.521618 | 23.2383773 | 1.213 | 0.033 |
INST | 780 | 0 | 74.5 | 19.231841 | 25.4300124 | 1.015 | −0.49 |
GOV | 780 | 0 | 93.4 | 21.385859 | 30.7899223 | 1.27 | 0.104 |
ROA | 780 | −0.0398 | 0.2163 | 0.051876 | 0.0650379 | 0.957 | 0.472 |
ROE | 780 | −0.0688 | 0.374 | 0.100429 | 0.1185833 | 0.813 | −0.089 |
LIQU | 780 | 0.5147 | 5.0461 | 1.833757 | 1.1885192 | 1.375 | 1.141 |
LEV | 780 | 0.0182 | 0.6098 | 0.232505 | 0.1724446 | 0.618 | −0.626 |
GEAR | 780 | 0.0195 | 2.0804 | 0.518018 | 0.5552779 | 1.554 | 1.667 |
ASSTTANG | 780 | 0.0089 | 0.78 | 0.356718 | 0.2437437 | 0.134 | −1.156 |
OC | 780 | 4.0974 | 6.8154 | 5.351267 | 0.7572294 | 0.219 | −0.776 |
EMFLEX | 780 | 0.0799 | 0.8734 | 0.400584 | 0.2238405 | 0.557 | −0.596 |
FIRM-Size | 780 | 4.6774 | 6.9666 | 5.691671 | 0.6958374 | 0.374 | −1.037 |
ABCFO | 780 | −0.1161 | 0.3152 | 0.063246 | 0.109628 | 0.622 | −0.033 |
ABPROD | 771 | −0.3129 | 0.9497 | 0.15093 | 0.3463521 | 0.889 | −0.085 |
ABDISX | 780 | −0.0001 | 0.1245 | 0.046524 | 0.0356111 | 0.742 | −0.45 |
RM1 | 780 | −0.5193 | 0.9232 | 0.091336 | 0.3780786 | 0.535 | −0.286 |
RM2 | 780 | −0.3813 | 0.0752 | −0.112051 | 0.1188598 | −0.659 | −0.152 |
RM3 | 780 | −0.61 | 0.9132 | 0.041996 | 0.3932643 | 0.479 | −0.237 |
Valid N (listwise) | 770 |
Variable | VIF | 1/VIF |
---|---|---|
ROE | 5.5 | 0.179769 |
ROA | 5.4 | 0.182472 |
Gear | 3.50 | 0.2845660 |
Leverage | 3.12 | 0.320985 |
Gov Own | 2.9 | 0.334147 |
Institutional Own | 2.7 | 0.359389 |
Managerial Own | 2.30 | 0.435571 |
Operating Cycle | 1.76 | 0.566583 |
Liquidity | 1.67 | 0.600512 |
Asset Tangibility | 1.64 | 0.610499 |
EM Flexibility | 1.58 | 0.633835 |
Family Own | 1.47 | 0.679588 |
Firm Size | 1.03 | 0.964374 |
Mean VIF | 2.09 |
Expected Sign | ABCFO | ABOPRO | ABDISX | RM1 | RM2 | RM3 | |
---|---|---|---|---|---|---|---|
Ownership structure | |||||||
Mag own | + | Negative and non-significant | Negative and significant at 1% | Negative and non-significant | Negative and non-significant | Positive and non-significant | Negative and non-sig |
Fam Own | − | Positive and significant at 1% | Positive and non-significant | Positive and non-significant | Negative and non-significant | Negative and sig at 10% | Negative and non-sig |
Inst Own | − | Negative and non-sig | Positive and non-significant | Negative and non-sig | Negative and non-significant | Negative and non-significant | Negative and non-sig |
Gov Own | + | Positive and non-sig | Positive and non-significant | Positive and non-significant | Positive and non-significant | Positive and non-significant | Positive and non-significant |
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Attia, E.F.; Mehafdi, M. The Dynamic Endogeneity Issue between Corporate Ownership Structure and Real-Based Earnings Manipulation in an Emerging Market: Advanced Dynamic Panel Model. Risks 2023, 11, 189. https://doi.org/10.3390/risks11110189
Attia EF, Mehafdi M. The Dynamic Endogeneity Issue between Corporate Ownership Structure and Real-Based Earnings Manipulation in an Emerging Market: Advanced Dynamic Panel Model. Risks. 2023; 11(11):189. https://doi.org/10.3390/risks11110189
Chicago/Turabian StyleAttia, Eman Fathi, and Messaoud Mehafdi. 2023. "The Dynamic Endogeneity Issue between Corporate Ownership Structure and Real-Based Earnings Manipulation in an Emerging Market: Advanced Dynamic Panel Model" Risks 11, no. 11: 189. https://doi.org/10.3390/risks11110189