Corporate Governance and Overproduction for State Owned and Privately Owned Companies

This study investigates the relationship between corporate governance mechanisms and earnings manipulation by overproduction in state owned compared with privately owned companies. Abnormal production cost (APROD) is used to measure overproduction practices. An empirical model is developed in which the abnormal production cost represents the dependent variable. The APROD model is tested using a sample of manufacturing companies containing state-owned and privately-owned companies over the period from 2010 to 2017, with 743 firm–year observations. The results show that the board size, board independence, number of audit committee meetings, and financial expertise for audit committee members appear effective mechanisms for curbing manipulation using production costs in state-owned manufacturing companies. For privately-owned manufacturing companies, the results reveal that only board independence and number of audit committee meetings appear effective mechanisms in constraining manipulation using production costs.