Board Independence, Corporate Governance and Earnings Management in France



The financial markets increasingly look to corporate governance mechanisms to help guarantee reliable and accurate financial information. The evaluation of the effectiveness of this role is therefore an interesting empirical question. This question has been brought to the fore by recent financial scandals and made crucial by the recent changes in the French institutional context. It is from this standpoint that this chapter aims to examine the influence of the board independence and two other corporate governance mechanisms, namely the audit quality and the ownership structure, on earnings management as measured by discretionary accruals. The empirical findings show that the presence of independent directors can moderate the management of discretionary accruals. The Big 4 auditors can also limit this discretionary adjustment. However, no statistically significant relationship was observed between dispersion vs. concentration of ownership structure and these accruals. This study makes an interesting contribution by making it possible to evaluate empirically the effectiveness of the role of three important corporate governance mechanisms. It adds to the limited research into the relationship between corporate governance and earnings management in France. Thus, it should be of interest to academics as well as regulators in preparing and amending corporate governance laws.


Corporate Governance Cash Flow Earning Management Ownership Structure Corporate Manager 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Beasley, M. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting Review, 71, 443–65.Google Scholar
  2. Benkel, M., Mather, P., & Ramsay, A. (2006). The association between corporate governance and earnings management: the role of independent directors. Corporate Ownership and Control, 3, 65–75.Google Scholar
  3. Charreaux, G. (2004). Corporate governance theories: From micro theories to national systems theories. Working Paper, University of Bourgogne, from:
  4. Chung, R., Firth, M., & Kim, J. B. (2002). Institutional monitoring and opportunistic earnings management. Journal of Corporate Finance, 8, 29–48.CrossRefGoogle Scholar
  5. Chung, R., Firth, M., & Kim, J. B. (2005). Earnings management, surplus free cash flow and external monitoring. Journal of Business Research, 58, 766–76.CrossRefGoogle Scholar
  6. Collective. (2003). Corporate governance in listed companies: Consolidation of Viénot and Bouton reports, AFEP – MEDEF Business Associations [in French].Google Scholar
  7. Cormier, D., & Magnan, M. (1995). Strategic earnings management: The case of forecast-issuing companies during an IPO. Comptabilité Contrôle Audit, 1, 45–61 [in French].Google Scholar
  8. Cormier, D., & Martinez, I. (2006). The association between management earnings forecasts, earnings management and stock market valuation: evidence from French IPO’s. The International Journal of Accounting, 4, 209–36.CrossRefGoogle Scholar
  9. Cormier, D., Magnan, M., & Morard, B. (1998). Strategic earnings management: Is the Anglo-Saxon model appropriate to the Swiss context? Comptabilité Contrôle Audit, 1, 25–48 [in French].Google Scholar
  10. DeAngelo, L. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3, 183–99.CrossRefGoogle Scholar
  11. Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual estimation error. The Accounting Review, 77, 35–59.CrossRefGoogle Scholar
  12. Dechow, P. M., & Skinner, D. J. (2000). Earnings management reconciling the views of accounting academics, practitioners and regulators. Accounting Horizons, 14, 235–50.CrossRefGoogle Scholar
  13. Fama, E. (1981). Agency problems and the theory of the firm. Journal of Political Economy, 88, 288–297.CrossRefGoogle Scholar
  14. Fama, E., & Jensen, M. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 301–26.CrossRefGoogle Scholar
  15. Francis, J. R., & Krishnan, J. (1999). Accounting accruals and auditor conservatism. Contemporary Accounting Research, 16, 135–65.CrossRefGoogle Scholar
  16. Grace, C. H., & Koh, P. S. (2005). Does the presence of institutional investors influence accruals management? Evidence from Australia. Corporate Governance, 13, 809–23.CrossRefGoogle Scholar
  17. Healy, P. (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7, 85–107.CrossRefGoogle Scholar
  18. Jeanjean, T. (2001). Contribution to the analysis of earnings management in French listed companies. Paper presented at the congress of the francophone accounting association [in French].Google Scholar
  19. Kim, J. B., Chung, R., & Firth, M. (2003). Auditor conservatism, asymmetric monitoring and earnings management. Contemporary Accounting Research, 20, 323–59.CrossRefGoogle Scholar
  20. Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33, 375–400.CrossRefGoogle Scholar
  21. Koh, P. S. (2003). On the association between institutional ownership and aggressive corporate earnings management. The British Accounting Review, 35, 105–28.CrossRefGoogle Scholar
  22. Peasnell, K. V., Pope, P. F., & Young, S. (2000). Accrual management to meet earnings targets: UK evidence pre- and post-Cadbury. The British Accounting Review, 32, 415–45.CrossRefGoogle Scholar
  23. Petra, S. T. (2007). The effect of corporate governance on the informativeness of earnings. Business and Economics, 8, 129–152.Google Scholar
  24. Piot, C., & Janin, R. (2007). Audit quality, corporate governance and earnings management in France. European Accounting Review, 16, 429–54.CrossRefGoogle Scholar
  25. Sloan, R. G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71, 289–315.Google Scholar
  26. Stolowy, H., & Breton, G. (2004). Accounts manipulation: A literature review. The Review of Accounting and Finance, 3, 5–66.CrossRefGoogle Scholar
  27. Stolowy, H., & Jeanjean, T. (2006). The financial competence of boards of directors. Paper presented at the congress of the francophone accounting association [in French].Google Scholar
  28. Watts, R., & Zimmerman, J. (1986). Positive accounting theory. New Jersey: Prentice-Hall.Google Scholar
  29. Xie, B., Davidson, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: The role of the board and the audit committee. Journal of Corporate Finance, 9, 295–316.CrossRefGoogle Scholar
  30. Young, S. (1999). Systematic measurement error in the estimation of discretionary accruals: An evaluation of alternative modeling procedures. Journal of Business Finance and Accounting, 26, 833–62.CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  1. 1.IESEG School of ManagementLilleFrance

Personalised recommendations