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Instituto Valenciano de Investigaciones Económicas

Publications

Foreign ownership and financial reporting quality in private subsidiaries
WP-EC 2017-02
Foreign ownership and financial reporting quality in private subsidiaries
Gill de Albornoz, B. and Rusanescu, S.
Year of publication: 2017
Keywords: propiedad extranjera; empresas no cotizadas; subsidiarias; manipulación del resultado; ajustes por devengo discrecionales; calidad institucional
JEL Classification: F23, M41, M48
DOI: http://dx.medra.org/10.12842/WPASEC-2017-02
Abstract
In a sample of large private Spanish subsidiaries, we find that the magnitude ofdiscretionary accruals is significantly higher when the parent company is foreign thanwhen it is local. Our tests support the thesis of recent research on earnings management strategies within multinational corporations (MNCs), suggesting that the parent company’s incentives underlie the observed negative relation between foreignownership and financial reporting quality at the subsidiary level. In particular, weobserve that: (1) the tenure of the controlling shareholder has a negative incrementaleffect on financial reporting quality in firms under foreign control, but not insubsidiaries of local groups; and (2) the negative association between foreign ownershipand financial reporting quality is mainly driven by the subsample of subsidiaries withparent companies located in countries with higher institutional quality than Spain.