Management ownership and earnings management: application of matching techniques
Abstract
This paper investigates the effect of managerial ownership on earnings management for the sample of European listed companies. To estimate the treatment effect of a manager who is also a controlling shareholder on earnings management, entropy balancing (EB), propensity score matching (PSM) and Mahalanobis distance matching (MDM) techniques are employed to identify a control sample. The EB method of reweighting control sample observations is compared to PSM and MDM techniques, as well as to standard ordinary least squares (OLS) regression, while controlling for the effects of company size, profitability, solvency, sales growth, and ownership concentration. The results demonstrate a significant positive relationship between management ownership and earnings management only when using the entropy balancing approach, and an insignificant relationship when applying PSM, MDM and OLS methods.
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