Ownership concentration, debt financing and the investment opportunity set determinants of accounting discretionempirical evidence from Spain

Resumen

Using a sample of 783 observations, belonging to 109 firms quoted in the Spanish capital market over the period 1991-1999, our research analyses the discretion and restrictions of accounting policy in a Continental European country, where firms present important differences in ownership structure and corporate governance compared to that of Anglo Saxon countries. This article shows that the absolute value of discretionary accruals declines with ownership concentration, this result being consistent with large shareholders playing an active role in corporate governance. In our financial system, where firms and banks enter into long term relationships, debt financing generates incentives for the exercise of accounting discretion, as also occurs in market oriented financial systems. The third variable analysed refers to the investment opportunity set. This variable exhibits a positive relation, that is, the more growth opportunities firms have the more accounting discretion managers exercise. The results reported in this study are also important because they are obtained from the estimation of a dynamic panel data model, which allows us to control for the reversion of accruals.