Noncontrolling shareholders' network centrality and corporate earnings management: Governance or conspiracy?

Corporate governance is undermined by the tunneling of controlling shareholders. Social networks play a positive role in corporate governance; hence, the question is whether noncontrolling shareholders can take advantage of their network position to participate in corporate governance and subsequently influence earnings management. Our findings indicate that noncontrolling shareholders' network centrality can impede positive accrual-based earnings management and primarily functions as a governance mechanism via external governance. Also influencing the relationship between positive accrual-based earnings management and noncontrolling shareholders' network centrality are the religious culture in different regions and the nature of corporate property rights. Our study contributes to the debate about the role of noncontrolling shareholders by providing direct evidence that the network centrality of noncontrolling shareholders plays an active role in enhancing corporate governance and accounting information quality. •We examine the governance role of non-controlling shareholder network centrality.•The non-controlling shareholder network centrality reduces earnings management.•The non-controlling shareholders network centrality improving external audit quality and acting as a supervisor.•State ownership and religion affect centrality and real earnings management.