Do Ownership Structure Characteristics Affect Italian Private Companies’ Propensity to Engage in the Practices of “Earnings Minimization” and “Earnings Change Minimization”?

The study aims to verify whether and how ownership structure (with specific reference to ownership concentration and identity) affects Italian private (unlisted) companies’ propensity to engage in practices of “earnings minimization” and “earnings change minimization”. Companies that engage in these practices have been identified following the “earnings frequency distribution” approach suggested by Burgstahler and Dichev (1997). The influence of ownership structure, together with that of a set of control variables mainly aiming to control for tax, financial, and size incentives, is tested by logit analysis models. Ownership concentration does not have a statistically significant influence. Conversely, institutional, state, and foreign ownership has a statistically significant influence. In the first and third cases, the influence is negative, in the second case the influence is positive. The study extends the current knowledge on the relationship between aspects of corporate governance and earnings management practices in private companies, especially SMEs. It also expands what is known about the earnings management practices undertaken by companies in countries, like Italy, in which a code law system is in force and accounting and tax systems are closely aligned.