DCC Brownbag - Allister Keane - Doctorant HEC au département de Comptabilité et Contrôle
Does state ownership impact earnings management and audit fees in the banking industry?
Tuesday 28 January 2020 (12h20 - 13h15) - Anthropole - 3077
This paper analyzes whether state ownership impacts earnings management (EM) and audit fees in the banking industry. State-owned banks are generally stakeholder- oriented financial institutions (STV banks) with a concentrated ownership. We take advantage of the heterogeneity of the Swiss banking industry in terms of ownership structure to better understand how the presence of a blockholder and a stakeholder orientation impact earnings management and audit fees. Switzerland is also interesting because its democratic institutions allows citizens to put a lot of pressure on politicians. Our main findings are the following. First, EM is not significantly lower in state-owned banks, but these banks pay lower audit fees than shareholder-oriented banks (SHV banks) with a blockholder. Second, there is no significant difference in EM and audit fees between state-owned banks and cooperative banks, which are STV banks with a diluted ownership. Third, despite similar audit fees, earnings management is significantly more important when a blockholder holds a majority of shares in SHV banks, in comparison to banks sharing the same objective but with a diluted ownership. Overall, our findings suggest that all shareholders do not impact EM and audit fees in the same way, because different incentives and governance mechanisms affect their discretion. In particular, the empowerment of people increasing the pressure in politicians in the Swiss democracy seems to have some positive effects on state- owned banks. Our results should be of interest for investors and regulators.