ESOPs and earnings management: An empirical note

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This study seeks to ascertain the impact of employee stock ownership plans (ESOPs) on earnings management. The empirical evidence shows that firms with larger ESOP ownership exhibit a lower degree of earnings management. I suggest that this is the case because ESOPs motivate employees to monitor management, hence, reducing managerial opportunism in the form of earnings management. Besides, ESOPs may act as a takeover defence and help managers take the long-term view of the firm, thus, lessening the motivation for short-term transient earnings distortion. Finally, there is evidence that ESOP ownership alleviates earnings management only in firms where outside blockholders are present.

Original languageEnglish (US)
Pages (from-to)287-293
Number of pages7
JournalApplied Financial Economics Letters
Issue number5
Publication statusPublished - Sep 1 2007


All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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