Based on agency and incomplete contract theories, the purpose of this study is to explore the impact of accounting residual control rights on earnings management and the moderating effect of managerial entrenchment.
This study uses A-share listed companies in Shanghai and Shenzhen from 2007 to 2023 as the sample and uses multiple regression analysis to test the hypotheses.
The results of this study show that accounting residual control rights significantly exacerbate both accrual-based and real earnings management. Further analysis by distinguishing the direction of earnings management reveals that this exacerbating effect is more pronounced for negative earnings management. Managerial entrenchment positively moderates the relationship between accounting residual control rights and both types of earnings management. Further examination of the direction of earnings management reveals that the moderating effect of managerial entrenchment is particularly strong in the negative earnings management dimension. Further analysis from the perspective of managerial heterogeneity shows that, compared with integrated and independent managers, the degree of entrenchment among dependent managers has the most prominent positive moderating effect on the relationship between accounting residual control rights and earnings management.
This study deepens the understanding of managers’ motivations for earnings management behaviors and clarifies their role in corporate governance, which is a useful supplement to the literature on accounting residual control, managerial entrenchment and earnings management.
