Corporate Governance, Information Intermediation, and Earnings Management

by Nico Lehmann
Doctoral thesis
Date of Examination:2014-09-24
Date of issue:2014-10-01
Advisor:Prof. Dr. Jörg-Markus Hitz
Referee:Prof. Dr. Olaf Korn
Referee:Prof. Dr. Jan Muntermann
Persistent Address: http://dx.doi.org/10.53846/goediss-4711

 

 

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Abstract

English

Based on four empirical studies, this thesis investigates the interrelation of corporate governance, information intermediation, and earnings management. First, the thesis complements the discussion initiated by the European Securities and Market Authorities about the role of proxy advisors at European shareholder meetings by providing empirical evidence on the influence and method consistency of these advisors for a European setting (Study 1). The respective findings are twofold; they indicate a significant correlation between negative proxy voting recommendations and voting dissent as well as a certain method consistency of these recommendations with respect to the employed governance perceptions. Second, the thesis augments prior work on the usefulness of commercial corporate governance ratings by shedding light on the incremental contribution of the rating vendor’s information processing activities (Study 2). The findings of this study suggest that governance rating vendors do not create value in the process of converting public data into aggregated ratings. Third, the thesis extends the perspective of prior research on proxy voting advisory and governance ratings by highlighting the role of corporate governance analysts (Study 3). In doing so, it provides empirical evidence on potential economic consequences of governance analyst coverage. The respective findings suggest that governance analysts serve as information intermediaries by enhancing the firm’s information environment and by promoting external monitoring to managers. Fourth and lastly, the thesis adds to research on the link between governance quality and earnings management by highlighting the setting-specific nature of this relationship (Study 4). Specifically, it examines whether the acquirer’s governance quality affects the acquirer’s earnings management behavior prior to share-based M&A transactions. The study’s findings suggest that – in contrast to common claims that strong governance constrains earnings management – acquirers with strong governance engage more aggressively in income-increasing accruals manipulation than those with weak governance. Overall, the thesis contributes to prior literature by, first, providing insights into the economic role of corporate governance advisory on capital markets and, second, by highlighting the setting-specific nature of the governance and earnings management relationship.
Keywords: Corporate Governance Ratings, Proxy Voting Advisory, Accrual-Based Earnings Management
 
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