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Monday, 3 June 2019





1.1         Background to the Study

Earnings quality is the honest expression of the reported profit. It is the ability of the present earnings to give a real picture about the company and its ability to survive in future (Salawu, 2017). The scandals in Enron, WorldCom, Cadbury Nigeria plc, Intercontinental bank, Afribank, and Oceanic bank have casted doubt on the quality of reports and the ability to meet the expectations and needs of the users (Uwuigbe, Peter & Oyeniyi, 2014). The challenges necessitated review and globalization of accounting standards, adoption of the International Financial Reporting Standards (IFRS), and Corporate Governance Code in order to evolve efficient accounting practice. It also led to the birth of Financial Reporting Council of Nigeria (FRCN) Act No 6 of 2011. Earnings management has a lot in common with earnings quality because high earnings management can produce low quality of earnings, as the manipulated information may lead to an incorrect decision but earnings management is not the only factor that affects quality of earnings. Other factors such as capital market and management compensation also contribute to the quality of earnings (Azzoz & Khamees, 2016). Prior research (Ayadi & Boujelbene (2016); Hashim & Devi (2014)) related earnings quality to the level of earnings management because of the difficulties in measuring earnings quality and established that firms use accounting accruals to manage earnings.
Ownership structure is generally referred to as the type of shareholders in a firm, which may influence firms‟ decisions that affect firm performance (Phung, 2015). The structure of a company is very important as they determine the economic efficiency of corporations being managed (Owiredu, Oppong & Churchill, 2014). Ownership is one of the main sources of agency problems between managers and shareholders or dominant and minority shareholders. Imbalances between ownership, control and monitoring may provide opportunities for some parties to exploit others. Managers perform services on behalf of shareholders and in most cases, the goals of the managers and shareholders may not align. The separated ownership leads to various conflict and controversies between shareholders, stakeholders and the managerial behavior. The ownership structure is also a factor that affects quality of accounting data because different ownership structures exist in different firms and as such influences performance, degree, and manner of management control (Namazi & Kermani, 2008). 
More equity ownership by managers may encourage them to make value- maximizing decision and lead to increase in earnings quality which results to the alignment of managerial interests with the shareholders. On the other hand, high managerial ownership and lack of discipline from the financial market paves way for managers to pursue an opportunistic behavior and may attempt to maximize their gains at the expense of shareholders and this may promote entrenchment of managers which may be costly and hereby reduces the quality of earnings (Owiredu, Oppong & Churchill, 2014).
Institutions with large shareholdings play an active role in monitoring the management of reported earnings because when they have long term investments, they are more concerned with the underlying profitability of the companies and cautious of the use of discretional accruals to manage earnings, thereby enhancing the quality of earnings reported (Yang,Chun, & Ramadili, 2009). The institutional investors also have the ability, opportunity and resources to monitor, discipline, and influence managers‟ decisions in the firm. Researchers like Hashim and Devi (2014), Alves (2012), Koh (2003) and Mashayekh (2008) argued that institutional share ownerships may have implications for earnings quality as they are able to influence the company. When institutional investors exert more control over company management than when they are mere investors, earnings quality is expected to increase because they are able and motivated to encourage high quality reports (Velury & Jenkins, 2006).
Large shareholders also known as block holders also impact greatly in governance because their sizable stakes gives the incentives to bear the cost of monitoring manager. Large shareholders are expected to monitor managerial behavior and actions effectively and in turn reduce the scope of managerial opportunism to engage in earnings management. This results to an improvement in earnings quality reported by managers. A firm is said to be highly concentrated if a significant proportion of its equity lies in the hands of few individuals (Roodposhti & Chasmi, 2010). In concentrated firms, there may be conflict of interest between the majority and minority shareholders as the controlling shareholders may be entrenched due to their concentrated voting power and hide their personal benefits by reporting low earnings which reduces the quality of earnings. On the other hand, controlling shareholders may align their interest with minority shareholders by reporting high quality earnings (Kiatapiwat, 2010). Empirical studies have revealed mixed relationship, researchers like Shleifer and Vishny (1997), Amador (2012), Anderson and Reeb (2003a), and Haioui and Jerbi (2012) have revealed positive relationship while Wang (2006), Baba (2016),  Alves (2012), Kiatapiwat (2010) revealed negative
relationship.  Foreign ownership can also be considered as a good source of managerial and monitoring skills. Most times, foreign owners choose the best domestic firms to invest in or firms belonging to high-productivity industries. Studies have shown that the foreign investors may act as a monitoring force to mitigate the decision of managers or insider owners that may be costly to other shareholders as they are believed to have the ability to monitor managers and unite the interests of both the managers and shareholders. It is argued that when foreign investors increase their stock holding to a certain level, and become large shareowners, they have the power to influence managerial decisions in ways that benefit them, perhaps by expropriating wealth from minority shareholders. When foreign ownership level is minor or moderate, it may improve firm performance by monitoring which results to high quality earnings. However, when large, it may damage performance (Choi, Park, & Hung, 2012).
Format: MS Word
Chapters: 1 - 5, Preliminary Pages, Abstract, References, Questionnaire.
Delivery: Email
No. of Pages: 110

NB: The Complete Thesis is well written and ready to use. 

Price: 10,000 NGN
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Masters Project Topics in Accounting and Finance

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