ARE CANADIAN CLOSELY-HELD FIRMS PERCEIVED TO REPORT LOW QUALITY ACCOUNTING INFORMATION? EMPIRICAL EVIDENCE

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Yves Bozec

DOI:10.22495/cocv4i1c1p3

Abstract

The objective of this study is to provide empirical evidence as to how corporate ownership structure in Canada affects earnings informativeness, as measured by the earnings-return relationship. Like those in many countries around the world, Canadian publicly traded companies are characterized by both concentrated ownership and divergence between voting rights and cash-flow rights. Like those in many other countries, their main agency problem resides in the conflict between large controlling blockholders and minority shareholders. These large dominant shareholders, with their imposing block of voting rights, are likely to influence accounting-information reporting. In this paper, we test whether large dominant shareholders are perceived to report low quality earnings. We show that earnings informativeness depends directly on the ownership structure of publicly traded firms. Furthermore, we show that investors perceive reported earnings as least credible when a controlling blockholder has both the power and impetus to expropriate minority shareholders, which suggests a non-monotonic relationship between earnings informativeness and ownership structure.

Keywords: Earnings Informativeness, Agency Costs, Ownership Concentration, Voting and Cash-Flow Rights Divergence

How to cite this paper: Bozec, Y. (2006). Are Canadian closely-held firms perceived to report low quality accounting information? Empirical evidence. Corporate Ownership & Control, 4(1-1), 195-208. http://dx.doi.org/10.22495/cocv4i1c1p3