Family Control and Earnings Management: An Empirical Analysis of the Lebanese Banking Sector

Abstract

This study aims to examine the relationship between board of directors’ characteristics, family control and earnings management practices in Lebanese commercial banks during 2008 to 2016. The characteristics of the board of directors are board size and role duality. Also, the study aims to identify earnings management practices during and after the global financial crisis. Earnings management was measured using discretionary accruals estimated by loan losses provision. The population for the study consists of Lebanese commercial banks registered with the Banque du Liban, which provided 182 bank/year observations during the study period. The results of the study indicate that Lebanese commercial banks with a relatively larger family control are more involved in earnings management practices. The study demonstrates that self-interest overrides common interests, leading the controlling family to maximize its own benefits at the expense of minority owners, resulting in more earnings management practices. In addition, capital adequacy and board size have significant positive influence on earnings management. Earnings management practices were not affected by role duality and bank size. Further, maintaining profitability was found to have a significant impact on earnings management practices. Finally, the results of the study indicate that Lebanese commercial banks became involved in earnings management practices after the global financial crisis compared to the period during the crisis.