Corporate Governance and Real Earnings Management: Evidence from an Emerging Economy

According to a United Nations report, Bangladesh will be the third fastest-growing economy in the world in 2019. When the economic growth of a country flourishes, undesired consequences such as corruption, favouritism and inequality tend to increase if they remain unchecked. It can inhibit the development of the country. Bangladesh is no exception to this. In order to sustain the high level of growth, Bangladesh is in need of proper governance and accountability systems. At micro level, management (agent) of a firm may try to maximize their own benefits at the cost of owners (Principal), which creates agency problems (agency problem 1). In Bangladesh, concentrated ownership is very high and hence controlling owners may expropriate the interest of minority shareholder (agency problem 2). In both the cases, they apply earnings management techniques to disguise other actions to other parties. So, it is necessary to delve deep into earnings management practices.