This study provides evidence that Belgian firms affiliated to a business group (holding) manage their
earnings more than stand-alone firms. Earnings management is especially more prevalent in fully owned
group firms compared to group firms with minority shareholders. This evidence is consistent with the
hypothesis that controlling shareholders face fewer constraints to manage earnings if opportunistic earnings
management cannot adversely affect the value of minority shareholders and is inconsistent with the claim
that group firms would engage in earnings management to hide controlling shareholders' self-serving
transactions.On the incentive part, we find that group firms strategically manage earnings in response to tax
incentives. More specifically, we show that signed discretionary accruals of group firms depend
significantly more on the marginal tax rate status of the firm as compared to independent firms. Finally, we
document that earnings management is particularly facilitated through intra-group transactions.
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