This paper reports evidence of earnings management associated with non-routine executive changes in a Danish context. It is hypothesised that incoming executives in non-owner-controlled companies decrease earnings by means of discretionary accruals in the financial statements relating to the period of the executive change. A modified, modified Jones model is used to divide income before tax into discretionary and non-discretionary components. The empirical evidence is consistent with the hypothesis. Non-owner-controlled companies significantly decrease earnings around executive changes, while this is not the case for owner-controlled companies. Also, a test shows a significant difference in earnings management in owner- versus non-owner-controlled companies around executive changes. The study elaborates on the research in the area by including ownership structure. Furthermore, the study is carried out in a national setting which differs from those previously studied, and hence it contributes to the discussion of whether the results of these studies can be used in other national settings.
Earnings management; Ownership structure; Periods of management changes; HHÅ forskning