Earnings Management and Internal Mechanisms of Corporate Governance: Empirical Evidence from Chilean Firms

Abstract

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We analyze the ability of the capital structure and the ownership structure as mechanisms of control of the managers of the firms and to reduce their accounting discretionary power for a sample of Chilean firms. Using earnings management and abnormal accruals as indicators of discretionary behavior, our results show that both debt and ownership concentration reduce the managers discretionary behavior, so we corroborate the outstanding role both mechanisms play in a country with low protection of investors rights. At the same time, we find that earnings management is fostered by institutional investor ownership.