The effects of controlling shareholders and information asymmetry on earnings quality of Thai listed companies

Abstract

This study aimed to examine the effects of controlling shareholders and information asymmetry on earnings quality of the listed companies on the Stock Exchange of Thailand (SET). The research sample consisted of listed firms in all industry groups under SET except financial industry. The data used were secondary data collected during the year of 2012-2014 and were analyzed using the structural equation model. In terms of proxy variables, the percentage of shareholdings was represented for controlling the shareholders whereas the bid-ask spread was a proxy of information asymmetry. Regarding the earnings quality, this study employed two major aspects: 1) discretionary accruals, which the proxy variables were calculated from Modified Jones Model and Francis Model and 2) real earnings quality, which the proxy variable was examined from operating cash index. The results showed that controlling shareholders had positive effect on both earnings quality and information asymmetry. Information asymmetry had negative effect on earnings quality. With regards to information asymmetry as mediation variable, controlling shareholders had negative effect on earnings quality through information asymmetry. Therefore, controlling shareholders provided both direct and indirect effects on earnings quality. The research results also implied that the increase of controlling shareholders led to the increase of information asymmetry, which brought about the decline of earnings quality.