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International Journal of Law and Management: Shareholder activism, earnings management and Market performance consequences: French case
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Abstract
Purpose – The purpose of this study is to investigate the impact of the relationship between shareholder
activism and earnings management on the market performance of French companies.
Design/methodology/approach – This study used 385 firm-year observations drawn from a sample of
French companies belonging to the SBF 120 index from 2008 to 2012. Data was collected from annual reports
of sample companies. To measure earnings management, this study used the model of Raman and Shahrur
(2008). The relationship between shareholder activism, earnings management and market performance using
the panel data regression model was empirically examined.
Findings – The results prove that shareholder activism, as indicated by shareholder proposals, has no
impact on market performance. However, the existence of shareholder activism affects the market
performance positively. In fact, a minimum of proposals proves that shareholder activism plays an
appropriate and effective role in creating value. Thus, several activists would resort to “a private activism”
which could be the best and the least expensive form. This form of activism is called “behind the scenes.”
Findings also show that earnings management has a negative impact on market performance. As a matter of
fact, these findings allow to conclude that the firm performance decreases whenever managers undertake to
earnings management. Also, earnings management behavior is mainly opportunistic. Finally, the relationship
between shareholder activism and earnings management has no impact on market performance. This result
reveals that shareholder activism proves to be an ineffective mechanism that does not alter the accounting
choices, particularly in relation to earnings management. This result shows the inability of active
shareholders to define and implement strategies across their proposals, namely, “the lack of monitoring
competence.”
Research limitations/implications – It is important in future research to evaluate the impact of behind
the scenes interventions on corporate governance. Also, this paper gives a larger dimension to the effect of
shareholder activism on the market performance in the specific context of earnings management, thus
justifying the need to expand this study using other methodologies to deepen and better understand this
relationship in this context.
Practical implications – The paper’s evidence contributes to an understanding of corporate governance.
The finding of this study will help in monitoring and controlling fraudulent earnings management practices
that effect on market performance. Further, this study is important to investors, academics and policymakers,
as it demonstrates that governance reforms that encourage firms to adopt better governance practices that
reduce the likelihood of earnings management.
Originality/value – To the best of the author’s knowledge, this paper pioneers in focusing on the impact of
the shareholder activism and earnings management on the market performance because previous studies put
more emphasis on pair-wise relations (Shareholder activism-earnings management, earnings management market performance and shareholder activism-market performance). This study provides empirical evidence
on the effectiveness of the relationship between shareholder activism and earnings management on market
performance.
Souha Siala Bouaziz - Personal Name
Ines Ben Amar Fakhfakh - Personal Name
Anis Jarboui - Personal Name
Ines Ben Amar Fakhfakh - Personal Name
Anis Jarboui - Personal Name
NONE
Text
ENGLISH
EMERALD INSIGHT
2020
ENGLAND
JURNAL ILMU HUKUM
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APA Citation
Souha Siala Bouaziz. (2020).International Journal of Law and Management:
Shareholder activism, earnings
management and Market
performance consequences:
French case.(Electronic Thesis or Dissertation). Retrieved from https://localhost/etd