Management Ownership Concentration Shareholding in Group of Family, Board Composition and Earnings Management

Abstract

Listed companies are organizations that disperse shares to general investors, who comprise a wide range of stakeholders. However, if that company has a concentrated shareholding structure for a certain group of people; such as, family, and appoints representatives as executives to control the direction of the operation in accordance with the interests, it would use the power of selected committee members in various faculties, including the use of discretion to conduct earnings management. The objectives of this research were to examine how the management ownership of a concentrated shareholding of a family group would influence the composition of the Board of Directors in accordance with the 2017 guideline practices that the Securities and Exchange Commission (SEC) has recommended and how they conducted earnings management. In addition, further studies were reviewed on how the concentration of the shareholding would provide related opportunities for the Chairman of the Board of Directors and CEO, and how the relationship would cause earnings management as well.

The sample group was listed companies in the Stock Exchange of Thailand (SET) from all industry groups except companies listed in banking, financial, and insurance. The sample was collected between 2014-2018 from 162 companies that were defined as a family business. The statistical regression method was used with panel data analysis for testing the hypothesis. Moreover, the measurement of earnings management used the Modified Jones Model (1995).

The results of the research showed that shareholding was concentrated in the family group, and there were executives representing the family in the opposite direction to the earnings management. While the relationship of the family shareholding role with the Chairman and CEO was a related party, it determined the number of Audit Committee members for a positive relationship. However, the research attempted to maintain the reputation of the family by trying to manage the earnings at a low level. Furthermore, the family business has an influence on setting the number of Board members according to the board's composition that was in accordance with the criteria recommended by the SEC.

The results of this research would benefit both prospective investors for use as a guide when deciding to invest in a listed company whose shareholding is concentrated in the family group and the management who would be the representative of that group. Likewise, this study provided information for a qualitative consideration of the operating results. In addition, the research results would be beneficial to the regulator of listed companies, as this could provide information for the improvement of the rules and regulations regarding good corporate governance in listed companies in the future.

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