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Francesco Grimaldi, Anna Lucia Muserra ORCID logo



The numerous cases of business disruptions, involving opportunism and accounting fraud by shareholder, directors and managers, that have occurred in different countries over the past two decades along with institutional and context phenomena and with the rise of the 2008 financial crisis, have refocused the attention of academia, professionals and world policy makers on the disclosure processes used by companies and on corporate governance mechanisms. This paper, after a systematic description of the investigated issues – ownership structure, ownership concentrations and largest shareholders examines the relationship between ownership structure or concentrated ownership and earnings management in the Italian context, characterized by concentrated ownership and the dominance of the largest shareholder who exercises typically significant influences on management decisions directly or indirectly. Existing literature suggests, in an unequivocal way, the effect of the ownership structure on earnings management. According to some researchers, the ownership structure decreases the incentive to manage earnings. Others have the opposite opinion, they think ownership structure on earnings management provides the opportunity and incentive to manipulate earnings. Therefore, the main purpose of this paper is to analyse whether, in the Italian context, a firm’s ownership structure, measured with several variables, exacerbates or alleviates earnings management. Using a sample of 300 non-financial listed Italian firms from 2011 to 2013. We find that discretionary accruals, as a proxy for earnings management, is negatively related to ownership concentration and the second largest shareholder and positively related to first largest shareholder. The study’s results suggest that ownership concentration improve the quality of annual earnings, in a particular agency setting, by reducing the levels of earnings management.

Keywords: Earnings Management, Discretionary Accruals, Ownership Structure, Ownership Concentration, Controlling Shareholder

Date received: 7 February 2017

Date Accepted: 5 April 2017

How to cite this paper: Grimaldi, F., & Muserra, A. L. (2017). The effect of the ownership concentration on earnings management. Empirical evidence from the Italian context. Corporate Ownership & Control, 14(3-1), 236-248.