Do shareholder rights influence managerial propensity to engage in earnings management?

We examine the relationship between shareholder rights and managerial propensity to engage in earnings smoothing. Using a measure of shareholder rights, and after controlling for factors that influence management’s decision to manage earnings, we conclude that increases in shareholder rights significantly increase management’s willingness to engage in earnings management. We find that firms with more democratic governance systems tend to have higher levels of current discretionary accruals and firms with less democratic governance structures tend to have lower levels of current discretionary accruals. Copyright Springer Science+Business Media New York 2015