Fishing in Troubled Waters: The Effects of Blockholder Ownership and Institutional Transparency on Earnings Management in Europe

Abstract: Nearly every firm, of any size, have at least one large shareholder; also known as a blockholder. This paper examines how multiple blockholders influence earnings management in European firms, and if firms with multiple blockholders in less transparent countries will utilize earnings management to a higher degree compared to their counterparts in transparent countries. Using a sample of 1,082 companies we find that firms with multiple blockholders will utilize earnings management less and practice more conservative/negative earnings management compared to firms with a single blockholder due to increased governance. Furthermore we also find, although inconclusive, results that suggest that firms with multiple blockholders that operate in less transparent countries will display larger magnitudes of aggressive/positive earnings management compared to firms with a single blockholder.