Journal of Economics and Management Volume 17, No. 2 September, 2021

The Effect of the Corporate Governance Evaluation Mechanism on Earnings Management

Shu-Hui Pan

Department of Accounting and Information Technology, National Chung Cheng University, Taiwan

Chia-Ching Cho

Department of Accounting and Information Technology, National Chung Cheng University, Taiwan

Shaio-Yan Huang

Department of Accounting and Information Technology, National Chung Cheng University, Taiwan

Peng-Nien Chen

Department of Accounting and Information Technology, National Chung Cheng University, Taiwan

Abstract

This study aims to test the effectiveness of the corporate governance evaluation mechanism (CGEM) in Taiwan, and whether firms value this mechanism then self-limit earnings management. In this paper, we use full announced ranking results and develop an analytical model that examines the effect of the ranking level on earnings management. We find that ranking levels are negatively and significantly associated with the extent of earnings management. However, we fail to detect a significant effect of the subsequent changes of rankings on the changes of the extent of earnings management. In addition, we explore family firms in Taiwan are fully engaged in this mechanism than non-family firms, which implies family firms are more reputational concerns. Our findings illustrate how the CGEM in Taiwan serves a certain effect on limiting earnings management through public pressure.

Keywords：Corporate Governance, Earnings Management; Family Firms

JEL Classifications：G34.

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