Insider Ownership and Earnings Management With Conditional Roles of CSR and Information Asymmetry: Evidence From African Firms

ABSTRACT

This study investigates the bidirectional relationship between insider ownership and real earnings management (REM), focusing on whether insider ownership acts as a governance mechanism to constrain REM or facilitates managerial entrenchment. It further examines the roles of corporate social responsibility (CSR) and information asymmetry as threshold mechanisms that shape this relationship, with a particular emphasis on family and nonfamily firms across selected African economies. Using panel data from 271 nonfinancial firms listed in Nigeria, South Africa, Kenya, Ghana, Tanzania, and Zimbabwe between 2012 and 2023, the study employs a two‐step system Generalized Method of Moments (sys‐GMM) to address endogeneity. Additionally, a dynamic panel threshold model is used to capture nonlinear effects of CSR and information asymmetry. The results support the dual‐role hypothesis, showing that insider ownership significantly facilitates real earnings management in family firms but constrains it in nonfamily firms, consistent with entrenchment and alignment effects, respectively. Conversely, real earnings management negatively influences insider ownership across all firm types, with stronger effects observed in nonfamily firms. Both CSR and information asymmetry exhibit significant threshold effects. Specifically, above the CSR threshold, insider ownership constrains real earnings management in nonfamily firms, while under high information asymmetry, insider ownership exacerbates real earnings management in nonfamily firms but mitigates it in family firms. This study is among the first to explore the two‐way interaction between insider ownership and REM within an African multicountry context, while incorporating dynamic threshold effects of CSR and information asymmetry. It offers novel insights into governance dynamics in emerging markets.