文献出处：Leuz C, Nanda D, Wysocki P D. Earnings management and investor protection: an international comparison[J]. Journal of financial economics, 2014, 6(03): 505-527.原文Investor Protection and Earnings Management:An International ComparisonChristian LeuzThe Wharton School of the University of PennsylvaniaDhananjay NandaUniversity of Michigan Business SchoolPeter D. WysockiMIT Sloan School of Management, CambridgeAbstractThis paper examines the relation between outside investor protection and earnings management. We argue that insiders, in an attempt to protect their private control benefits, use earnings management to conceal firm performance from outsiders. We hypothesize that earnings management decreases in investor protection because strong p rotection limits insiders’ ability to acquire private control benefits and hence reduces their incentives to mask firm performance. Using accounting data from 31 countries between 1990 and 1999, we present empirical evidence consistent with this hypothesis. Our result points to an important link between legal institutions, private control benefits and the quality of accounting earnings reported to capital market participants. These findings complement prior finance research that generally treats the quality of corporate reporting as exogenous.Key Words: Corporate governance; Earnings management; Investor protection; Private control benefits; Law1. IntroductionThe legal protection of outside investors has been identified as a key determinant of financial market development, capital and ownership structures, dividend policies, and private control benefits around the world (see Shleifer and Vishny, 1997 and La Porta et al, 2000a). Extant work, however, has paid scant attention to the relation between legal protection and the quality of financial information reported by insiders, namely managers and controlling shareholders, to outsiders, namely the firm’s minority (or arm’s length) shareholders and creditors. Reporting firm performance in a “true and fair” manner is critical for effective corporate governance because it allows outsiders to monitor their claims and exercise their rights (see, for example, OECD Principles of Corporate Governance, 1999).In this paper, we highlight legal protection as a key primitive affecting the quality of firms’ earnings. Strong and well-enforced outsider rights limit the acquisition of private control benefits, and consequently, mitigate insiders’ incentives to manage accounting earnings, as insiders have little to conceal from outsiders. This insight motivates our primary hypothesis that the pervasiveness of earnings management is decreasing in legal protection. Our empirical findings are consistent with this hypothesis.Following Healy and Wahlen (1999), we define earnings management as the alteration of firms’ reported economic performance by insiders to either “mislead some stakeholders” or to “influence contractual outcomes.” We argue that incentives to misrepresent firm performance through earnings management arise from a conflict of interest between the firms’ insiders and outsiders. Specifically, insiders use their control over the firm’s resources to benefit themselves at the expense of outsiders. If these private control benefits are detected, outsiders are likely to take disciplinary actions against insiders. Consequently, insiders have an incentive to conceal these resource diversions from outsiders. We argue that insiders manipulate accounting reports of firm performance in an attempt to hide their private control benefits. For instance, insiders can use their discretion in financial reporting to overstate earnings and conceal unfavorable earnings realizations (e.g., losses) that would prompt outsiderinterference. Similarly, insiders can use accounting choices to understate earnings in years of good performance to create reserves for periods of poor future performance, effectively making reported earnings less variable than true firm performance. Outsiders’ ability to govern a firm is weakened when extensive earn ings management results in financial reports that inaccurately reflect firm performance.The effectiveness of a country’s legal system in protecting minority shareholders and outside creditors limits insiders' ability to acquire private control benefits (e.g., Claessens et al., 2000a; Nenova, 2000; Dyck and Zingales, 2002). Strong legal protection increases insiders’ costs of diverting resources (e.g., Shleifer and Vishny, 1997; La Porta et al., 2000a; Shleifer and Wolfenzon, 2000). We argue that insiders’incentive to conceal their private control benefits decreases in the legal system’s effectiveness in protecting outside investor interests. Thus, our primary hypothesis is that earnings management decreases in legal protection because strong investor prot ection limits the acquisition of private control benefits, which reduces insiders’ incentives to obfuscate performance.This hypothesis is tested using financial accounting and institutional data for a sample of firms from 31 countries (from 1990 to 1999) with substantial variation in investor protection laws and enforcement activities. We create four related proxies to measure the pervasiveness of earnings management in a country. The measures capture the extent to which insiders manage the “accounting” c omponent of reported earnings to smooth or mask the firm’s economic performance, and together proxy for the level of earnings management in a country. Our analysis begins with a descriptive country cluster analysis, which groups countries with similar legal and institutional characteristics. Three distinct country clusters are identified:(1) outsider economies with strong legal enforcement (e.g., UK and US); (2) insider economies with strong legal enforcement (e.g. Germany and Japan); and, (3) insider economies with weak legal enforcement (e.g., Italy and India). The clusters closely parallel simple code/common-law and regional characterizations used in prior work (e.g., La Porta et al., 1997; Ball et al. 2000). Outsider economies with strong enforcement display the lowest and insider economies with weak enforcement thehighest level of earnings management. That is, earnings management appears to be lower in economies with strong investor protection, large stock markets, dispersed ownership, and strong legal enforcement.To relate earnings management more explicitly to the level of investor protection, we undertake a multiple regression analysis. Outside investor protection is measured by the extent of minority shareholder rights as well as the quality of legal enforcement. Our results show that earnings management is negatively related to outsider rights and legal enforcement. These results are robust after controlling for differences in economic development, macroeconomic stability, industry composition and firm characteristics across countries. Tests that account for the endogeneity of investor protection and other institutional factors, such as differences in the accounting rules or ownership concentration, provide further evidence that investor protection is a key determinant of earnings management activity across countries. We also provide direct evidence that earnings management is positively associated with the level of private control benefits enjoyed by insiders.This study builds on recent advances in the corporate governance literature on the role of legal protection in financial market development, ownership structures, and private control benefits (e.g., Shleifer and Vishny, 1997; La Porta et al., 2000a). We extend this literature by presenting evidence that the level of outside investor protection endogenously determines the quality of financial information reported to outsiders. These results add to our understanding of how legal protection influences the agency conflict between outsider investors and controlling insiders. Weak legal protection appears to result in poor-quality financial reporting, which is likely to undermine the development of arm’s length financial markets.Our work also contributes to a growing literature on international differences in firms’ financial reporting. Prior research has analyzed the relation between earnings and stock prices around the world, only implicitly accounting for international differences in institutional factors (e.g., Alford et al., 1993; Joos and Lang, 1994; Land and Lang, 2000). Our results suggest that a country’s legal and institutional environment fundamentally influences the properties of reported earnings. In thisregard, our study complements the recent work by Ball et al. (1999 and 2000), Fan and Wong (1999), Ali and Hwang (2000), and Hung (2001), which documents that various institutional factors explain differences in the price-earnings association across countries. However, the price-earnings association reflects both differences in the pricing mechanism and earnings management. Thus, it is important to understand the effect of institutional factors on reported earnings when examining the relation between stock prices and “managed” earnings.The remainder of the paper is organized as follows. Specific hypotheses are developed in section 2. Section 3 describes the construction of the earnings management measures. In section 4, we describe the sample and provide descriptive statistics. Empirical tests and results are presented in section 5. Section 6 concludes.2. Earnings management, private control benefits and investor protectionIn this section, we argue that international differences in incentives to misrepresent firm performance arise from a conflict of interest between the firms’ insiders and outsiders, i.e., the incentive of insiders to acquire private control benefits, effectively expropriating outsiders. Recent advances in the corporate governance literature suggest that this agency conflict is widespread around the world and affecte d by a country’s legal structure (e.g., Shleifer and Vishny, 1997; La Porta et al., 1999 and 2000a; Claessens et al., 2000b).2.1. Private control benefits and hiding incentivesA benefit of acquiring control in a firm is that controlling parties, such as majority owners or managers, need not share gains with all the firms’ owners. Examples of private control benefits are wide-ranging. They include the “psychic” value of being in charge and fairly facile forms of profit diversion such as perquisite consumption. At the other end of the spectrum, private control benefits include outright theft or transfer of firm assets to other firms owned by insiders and their family members. The common theme is that some value is enjoyed exclusively by insiders and not shared with non-controlling outsiders.As a consequence, controlling insiders have incentives to conceal their privatecontrol benefits from non-controlling parties, i.e. outside investors (see also Zingales, 1994; Shleifer and Vishny, 1997). If these private control benefits are detected, outsiders are likely to take disciplinary actions against insiders. We therefore argue that managers and controlling owners have an incentive to manage earnings in order to conceal the firm’s true performance from outsider s. For example, insiders can use their financial reporting discretion to overstate earnings and conceal unfavorable earnings realizations (e.g., losses) that would prompt outsider interference. Insiders can also use accounting choices to understate earnings in years of good performance to create reserves for future poor periods; effectively making firm earnings less variable than its economic performance. Thus, insiders can reduce the likelihood of outside intervention by masking their private control benefits through the management of the level and the variability of reported earnings.2.2. The role of investor protectionIn order to limit insiders’ private control benefits, outside investors design contracts that confer them rights to discipline insiders (e.g., to replace managers). However, outsiders must rely on their country’s legal system to enforce these contracts (La Porta, et. al., 1998). Legal systems protect investors’ property rights by enacting and enforcing laws that enable a firm to contract with outside investors. For instance, shareholders are paid dividends because they can vote to replace their firms’ managers and directors, and creditors are repaid because the law enables them to repossess firm assets in case of default. Recent research documents that effective outside investor protection limits insiders’ ability to acquire private control benefits. La Porta et al. (2000b) show that higher dividend payouts are associated with stronger minority shareholder protection. Claessens et al. (2000a), Nenova (2000), and Dyck and Zingales (2002) find that private control benefits are negatively associated with stronger outsider protection and legal enforcement.As effective outside investor protection limits insiders’ ability to acquire private con trol benefits, it also reduces insiders’ need to conceal their activities. We hypothesize that earnings management is more pervasive in countries with weak legal protection of outside investors because insiders enjoy greater private control benefitsand hence have stronger incentives to obfuscate firm performance. Following La Porta et al. (1998), we distinguish between the legal rights accorded to outside investors and the quality of their enforcement. The strength of laws that protect minority rights and their enforcement via the judicial system are complementary legal structures and hence are both hypothesized to be negatively associated with earnings management.2.3. Competing effectsIn the preceding discussion, we argue that outside investor protection is a key primitive that affects insiders’ earnings management activities across countries. A number of other factors are purported to affect earnings quality at the country level. These factors can be broadly categorized as essentially exogenous factors, such as industry composition, and arguably endogenous factors, such as accounting standards and ownership structure. We attempt to explicitly control for exogenous factors, such as industry composition and macroeconomic stability, in our empirical analyses.While accounting standards and ownership structure are important factors correlated with observed earnings management activities, it is unclear whether they are fundamental primitives. In our view, low earnings management, well-functioning markets for outside capital and dispersed ownership patterns are joint outcomes of strong investor protection. Prior work shows that investor protection is the key primitive that explains corporate choices, such as firms’ financing and dividend policies as well as ownership structures (e.g., La Porta et al. 1997, 1999, 2000a). Accounting rules likely reflect the influence of a country’s legal and institutional framework and are therefore endogenous in our analysis. Countries with strong outsider legal protection are expected to enact and enforce accounting and securities laws that limit the manipulation of accounting information reported to outsiders. Consistent with this view, Enriques (2000) argues that UK and the US laws on director self-dealing are stricter and are more reliant on disclosure than those in Germany or Italy. Similarly, d’ Arcy (2000) shows that Anglo-American countries have stricter accounting rules with respect to accounting choices than do Continental-European countries with less effective investor protection. Moreover, theextent to which accounting rules limit insiders’ ability to engage in earnings management depends on how well these rules are enforced. While accounting standards can affect the reliability of financial reports, their impact is diminished in the face of weak legal enforcement. Ultimately, however, the relative importance and impact of various institutional factors on firms’ earnings management activities is an empirical issue. We therefore explore the role of other institutional factors in our empirical analysis.Finally, we note that strong investor protection may potentially encourage earnings management because insiders have greater incentive to hide their private control benefits when faced with higher penalties. Conversely, insiders have little incentive to conceal their diversions if outsiders cannot penalize these activities. We acknowledge this potentially confounding effect. One may argue that the penalty effect is likely to be dominated by international differences in private control benefits as suggested by our primary hypothesis. To resolve this issue, we appeal to the data.译文投资者保护和企业盈余管理一个国际比较克里斯蒂安·洛茨宾夕法尼亚大学沃顿商学院达安尼捷·南达密歇根大学商学院彼得·维索斯麻省理工学院基斯隆管理学院摘要：本文主要考察了外部投资者保护和企业盈余管理之间的关系。