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Regression results: The impact of COVID-19 on AEM and REM and the mitigating effect of corporate governance (Part 1)
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The objective of this paper is to analyse the impact of COVID-19 on the earnings manipulation of firms and whether corporate governance has a mitigating effect. The methodological approach consists of two steps: in the first stage, a pooled ordinary least squares (OLS) regression model has been implemented to compute the earnings management proxies...
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Context 1
... results of the regression analysis are summarized in Table 2. The first model shows the results of accounting-based earnings management, while the second one reports those of real-based earnings management. ...Context 2
... we have determined whether fixed effects, random effects or pooled data specification has to be used to estimate the results. Table 2 shows that pooling the data is not suitable (p-value of the Lagrange multiplier test < 0.01) and that using fixed effects is preferred to REM (p-value of the Hausman test < 0.01) in both models. Furthermore, the Pesaran and the modified Wooldridge tests are both significant at better than 0.01, indicating that cross-sectional dependence and heteroskedasticity are issues in the two models. ...Context 3
... line with Hsu and Liao (2022), the results suggest how higher information asymmetry and bad firm performance during COVID-19 led to a higher magnitude of earnings management by European firms. In addition, the interaction term COV * BSIZE (Panel A of Table 2) is negative and statistically significant, indicating how a larger board size could mitigate the positive relationship between COVID-19 and earnings manipulation. One possible reason is that a larger board assures better monitoring (Boone et al., 2007;Lu & Boateng, 2018;Hsu & Yang, 2022;Garfatta et al., 2023), which is essential to constrain firm's earnings management during the pandemic, consistently with the agency theory. ...Context 4
... with previous literature (Anagnostopoulou & Tsekrekos, 2017;Liu & Sun, 2022;Rahman et al., 2023), the results show that firms with better performance (ROA), more growth opportunities (MTB and GROWTH) and higher leverage (LEV) tend to have a lower degree of earnings manipulation because of the higher monitoring level from regulators and investors. Regarding the other three explanatory variables (board independence, CEO duality and board diversity), none of them is statistically significant (Panels B, C and D of Table 2), hence they may not mitigate the negative impact of COVID-19 on earnings management. One possible explanation can be related to the sample taken into account in this research. ...Similar publications
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