ASSOCIATIONS OF CONTROLLING SHAREHOLDERS ON ACCOUNTINGQUALITY: EVIDENCE FROM THAILAND

Abstract

This study examines the accounting quality in associations with controlling shareholders. The samples consisted of 370 listed firms traded on the Stock Exchange of Thailand (SET) between 2008 and 2012. Controlling shareholders were determined by two cutting points of voting rights: (1) not less than 10%, and (2) not less than 25%. On the other hand, accounting quality was measured by four discretionary or abnormal accruals models; including (1) the Dechow and Dichev model (2002), (2) the Modified Jones model (1995), (3) the Yoon, Miller, and Jiraporn model (2006), and (4) the adjusted accruals model. The discretionary accruals value was determined by the estimated results of panel data models with random effects using (1) all samples, (2) sample categorized by industry, and (3) sample categorized by year of operation. This study also examined the effects of the types of controlling shareholders and the levels of ownership on accounting quality. The results showed that the Alignment Effect and the Stewardship theory were likely to be more severe in the firms with a controlling shareholder which had not less than 25% of voting rights, since these two factors were strongly associated with high accounting quality. Furthermore, the accounting quality of controlling shareholders firms was also better than the counterparts. However, the voting rights of the controlling shareholders must be high enough to make decision or block voting. The results coincided with conditions of the Alignment Effect and the Stewardship theory. On the contrary, the accounting quality of the firms which controlling shareholders had voting rights more than 10% but less than 25% was low. The result also coincided with the indications of the Entrenchment Effect. As a whole, this study found enough evidences to confirm for the association between the accounting quality and controlling shareholders, by which the level voting rights had higher effect on the accounting quality than the types of controlling shareholders.