||In the modern enterprises, the capital structures are made up by the specific or the non-specific populace sources. In the separation of management rights and ownership, their common interests may not be the same, so the agency problems are arising. In recent years, the public has serious doubts about unreasonable compensation of directors with higher ranks. The study samples are companies listed in Taiwan Stock Exchange from 2005 to 2007, but excluding banks and insurance companies. This study investigates the relationship between corporate governance and earnings management. The corporate governance variables include director stock ownership, the pledged share ratio of directors, chairman of the board as general manager, percent of independent directors on the board, the average compensation of directors, foreign investors’ ownership, and institutional ownership in the firm.|
The empirical results show that chairman of the board as general manager who has significant influence on earnings management in the whole industry, electronic industry, and non-electronic industry; the average compensation of directors with higher ranks have significant influence on earnings management in the whole industry and non-electronic industry. In different industries, some empirical results support the hypotheses while other hypotheses do not hold. Thus, this research study has believed that the interconnection between the corporate governance variables and earning management will be affected by characteristics of certain industries.
In addition, this research study has also found that there are no direct relationships between corporate governance and earnings management. Hence, the corporate governance in Taiwan is still considered not long enough and can not become an independent factor to affect earnings management inhibition of behavior. Therefore, certain parts of hypotheses will not establish.