Control Variables: Definition, Types & Examples

Control Variables: Earnings management
Company size (CSZ)	According to (Meek et al. (2007), there is a negative relationship between company size and earnings management. Large companies have reduced earnings management practice. Ahmad et al. (2006) and Kim et al. (2003) state that big companies can have a sturdier internal system of control and might have more experienced internal auditors than small companies thus; an efficient internal control system aids in preparing consistent financial data to the public, which is probable to minimize the management's capacity to influence earnings. However, Ali et al., (2015) performed a research to assess the effect of company size on earnings management for the Pakistani textile industry, and the statistical findings showed a positive significant effect of the size of firm on earnings management.
Company age (CA)	There is a negative relationship between company age and earnings management. Alsaeed (2006), assert that old companies may have better practices for financial reporting with time. Akhtaruddin (2005), the more the company has been operating, the lower propensity to conduct earnings management practices. Bassiouny et al. (2016) a firm which has been in operation for long will show low earnings management in comparison to a newer firm since the older firm could wish to evade a bad image by the public.
Family firm (FF)	Prencipe, Markarian & Pozza (2008) postulated that there is positive association between family companies and earnings management. Family firms are driven to manage earnings for leverage-associated and debt-covenant motives. However, Anderson and Reeb (2003) indicated a negative relationship by asserting that family business is considerably less probable to manager earnings. Further, Yang (2010) showed a positive relationship - the bigger the insider ownership extent, the higher the earnings management.
Board size (BSZ)	According to Beasley (1996), the bigger the board size the lesser earnings management. Obigbemi et al. (2016) claimed that there is a negative and significant relationship between earnings management and board size, composition, and gender. Daghsni, Zouhayer & Mbarek (2016) found the board size to have a negative relationship with earnings management.
Board independence (BID)	Idris, Siam & Nassar (2018), using information of industrial companies listed on the Amman Stock Exchange, concluded that a negative relationship existed between earnings management and board independence. The authors assert that a greater proportion of board independence is linked with more efficient control to minimize earnings management. Also, Khalil & Ozkan (2016) using a unique dataset of Egyptian companies to analyze the relationship among earnings management, board independence, and audit quality disputed the idea that a greater percentage of non-executive team is related to lesser earnings management. The researchers found that the impact of board independence on the practices of earnings management depended on the ownership levels the executive directors and major shareholders hold, and the audit committee composition.
Role duality (DUAL)	In a study conducted by Daghsni, Zouhayer & Mbarek (2016) to investigate the influence of board features like its size on the earnings management in firms registered on the SBF 250, the CEO duality was established to positively influence earnings management. This suggested that through conjoining the CEO function and the board chairman’s role aids in increasing the earnings management since the CEO could minimize the board's efficiency and cause a conflict between the board and the management which could decrease earnings management. Besides, according to Kamarudin, Ismail & Samsuddin (2012), the dual function of CEO and board chairman could minimize the efficiency of autonomous audit teams, and thus reduce their effectiveness of monitoring financial statements. If a CEO has excess power over the board choices by being the chairman, the observation role of independent audit boards for ensuring earnings’ high quality in financial reports turns out to be ineffective.
Leverage (L)	As stated by Ma'ruf (2006) in Guna and Herawaty (2010), the management will likely perform earnings management practices if the leverage ratio is high. Burgstahler and Dichev (1997) and DeGeorge, Patel, and Zechhauser (1999) point out that investors are interested in positive earnings. Thus, companies which have greater leverage ratios are expected to have higher motivations for managing their earnings as they should give their financiers good outcomes for refinancing their company debt. Matsumoto (2002) stated that managers aim at avoiding earnings surprises. This could be done by managing earnings to reach the analysts' goals.
Liquidity	Riahi, Lamiri & Arab (2013) carried out a study to explore the correlation between earnings management and Tunisian market liquidity. The findings of the research demonstrated the presence of a significant positive association between the earnings management the Tunisian firms attained as well as the market liquidity. The study showed that earnings management practice made the market more liquid. In another study conducted by Huang, Lao & McPhee (2017) to investigate the impacts of stock liquidity on earnings management, the researchers found out that stock liquidity increases accrual-based earnings management, and that liquidity impacts earnings management through magnifying the effects of equity compensation and takeover pressure. Similarly, in their research, Ascioglu, Hegde, Krishnan & McDermott (2012) concluded that companies with greater earnings management are related to smaller market liquidity.
Sales Growth	Companies which have high growth might not essentially manipulate incomes for reporting positive incomes or shifts in incomes. But the ones which have low rates of growth could manipulate earnings or alter earnings via earnings management. However, the high growth companies could bias up earnings after forming a continuous sales growth or earnings trend (Myers and Skiner (2000). Lee, Li & Yue (2006) explored the connection between the level of managed earnings and corporation's earnings performance as well as anticipated growth in a reporting model, in which the management manipulates earnings for influencing the company's equity valuation whereas suffering a price which is convex and increasing in the sum of managed incomes. Therefore, companies which had greater performance over-reported earnings by a higher amount, since price sensitivity upsurges with growth and earnings performance. Besides, earnings quality, which is the percentage of actual monetary incomes in total earnings reported, increased with earnings performance but decreased with earnings growth.
Cash flows	According to Peasnell et al. (2005), Chung et al. (2005) and Alzoubi (2016), higher cash flows from firm operations lead to higher earnings management levels. However, Gul et al. (2009) and Chen et al. (2007) established a negative association between cash flows and earnings management. Nekhili et al. (2016) performed a study to examine the controlling impact of ownership characteristics and company governance in reducing earnings management activities in a free cash flow situation. The findings indicated the unscrupulous activities of leaders in existence of free cash flows. In particular, directors engaged in earnings management activities, which increased reported earnings. These findings were replicated in research by Cardoso et al. (2014), which showed that companies with low growth perceptions and excessive free cash flow were more probable to manage earnings to augment profitability.
Dividends per share	In a study conducted by Ahmed, Advani & Kanwal (2018) to inspect the association between price-earnings as an earning management proxy, and dividend payout ratio, the findings demonstrated that the dividend payout ratio and price earnings ratio exhibited a negative relation and positive convexity and vice-versa. Therefore, from this research, dividend per share is has a negative correlation with earnings management. If the dividend per share ratio increases, earnings management reduces.
Firm's Loss	Degiannakis et al. (2017) stated that firms try to avoid losses to enhance their earnings management. Thus, there is a negative relationship between firm’s loss and earnings management. Loss making firms have reduced earnings management. Also, Comiran, Fedyk & Ha (2016) studied earnings management, and valuation of underperforming loss making firms. They established a negative relationship between earnings management and firm’s loss. Burgstahler & Dichev (1997) reported prove that companies manage reported earnings to avoid the decrease and loss of earnings. Thus, firms making loss manage their earnings better, and so there is a positive relation between firm’s loss and earnings management.

Control Variables: Firm Performance
Family Firm (FF)	Bhatt & Bhattacharya (2017) investigated the effect of family firms on the association between board characteristics and firm performance in Indian firms. The results showed a negative impact on board structure on firm performance in family firms in comparison to non-family firms. Further, Saito (2008) explored the firms’ performance managed by founding families in Japan. The findings indicated that the family firms’ performance was better than that of non-family firms. Thus, there was a positive relationship between family firms and firm performance.	Bhatt & Bhattacharya (2017); Saito (2008).
Board Size (BSZ)	Kalsie & Shrivastav (2016) examined the link between firm performance and board size. The findings concluded that the board size had significant and positive effect on the firm performance. However, in a study done by Topak (2011) to investigate the connection between the financial performance of firms in Turkey and board size, the findings showed that as opposed to results of different studies, there was not relationship between the firm performance for Turkey and board size. Further Badu & Appiah (2017), in a study to explore the effect of corporate board size on firm performance for a sample of Nigerian and Ghanaian firms, the findings found that optimal corporate board size successfully advice, control and discipline management, thus enhancing firm performance. Thus, firm performance and board size are positively related. Also, Orozco, Vargas & Galindo-Dorado (2018) studied the association between board size and financial and reputational corporate performance in Colombia. The researchers found large boards to be related to higher performance on corporate reputation, and low financial performance. Thus, financial performance is negatively related to board size.	Kalsie & Shrivastav (2016); Topak (2011); Badu & Appiah (2017); , Orozco, Vargas & Galindo-Dorado (2018).
Board Independence (BID)	According to Sanda (2011), who studied the link between firm financial performance and board independence, the two were positively related. Also, Fuzi Halim & Julizaerma (2016), who defined board of directors as collective body acting in the best interest of shareholders, showed that the firms with the highest number of independent directors had better firm performance. Similarly, Rashid (2018) investigated whether board independence influenced firm’s financial performance amongst listed companies in Bangladesh. The results showed no relationship between firm financial performance and board independence in Bangladesh firms. Pan, Huang, & Gopal (2016) found that firms with more independent board members performed better than firms with less independent board directors.	Sanda (2011); Fuzi Halim & Julizaerma (2016); Rashid (2018); Pan, Huang, & Gopal (2016).
Role Duality (DUAL)	Dogan et al. (2013) studied the effect of CEO duality on firm performance on a sample of listed firms in Turkey and found a negative relationship between CEO duality and firm performance. Also, Chen, Lin & Yi (2008) explored the association between CEO duality and fi performance and their empirical results found no significant association between firm performance and CEO duality. Yan Lam & Kam Lee (2008) explored the association between firm performance and CEO duality and the moderating impacts of the family control element in Hong Kong. The results did not also find any relationship between CEO duality and firm performance. Moreover, Elsayed (2007) studied whether CEO duality had an effect on corporate performance for Egyptian listed firms and found that CEO duality did not impact corporate performance.	Dogan et al. (2013); Chen, Lin & Yi (2008); Elsayed (2007); Yan Lam & Kam Lee (2008).
Leverage (L)	Ilyukhin (2015) studied the link between financial leverage and firm performance for large Russian firms. The author used the ration of company debt to total assets as financial leverage measure, and return on assets, operating margin and return on equity as financial performance measures. The results found a negative effect of financial leverage on firm performance for Russian firms. Also, Ibhagui & Olokoyo (2018) found a positive relationship between firm performance and leverage, although the positive relation was subject to the firm’s size and where leverage is higher for smaller firms. Also, Hutten (2014) studied the influence of leverage on firm performance and found a positive relationship. Javed et al. (2015) studied the impact of financial leverage on Pakistan firms’ performance, and found a negative relation.	Ilyukhin (2015); Ibhagui & Olokoyo (2018); Hutten (2014); Javed et al. (2015).
Liquidity	Sanghani (2014) established that liquidity (current ratio) positively affected the financial performance of firms. Besides, Demirgüneş (2016) investigated the impact of liquidity on financial performance of Turkish retail industry. The findings showed a significant positive relationship between liquidity and financial performance. Similarly, Farooq & Bouaich (2012) examined he relationship between liquidity and firm performance in MENA region and established a positive and significant relationship.
Sales Growth	Myers and Skiner (2000) found a positive relationship between sales growth and firm management. Lee, Li & Yue (2006) established that companies which had greater performance over-reported earnings by a higher amount, since price sensitivity upsurges with growth and firm performance. Besides, earnings quality, which is the percentage of actual monetary incomes in total earnings reported increased with firm performance but decreased with earnings growth.	Myers and Skiner (2000); Lee, Li & Yue (2006).
Cash Flows	According to Peasnell et al. (2005), Chung et al. (2005) and Alzoubi (2016), higher cash flows from firm operations lead to higher firm performance levels. However, Gul et al. (2009) and Chen et al. (2007) established a negative association between cash flows and firm performance. Nekhili et al. (2016) and Cardoso et al. (2014) found that companies with low growth perceptions and excessive free cash flow were more probable to manage earnings to augment profitability, leading to better firm performance.	Peasnell et al. (2005); Chung et al. (2005); Alzoubi (2016); Gul et al. (2009); Chen et al. (2007); Nekhili et al. (2016); and Cardoso et al. (2014)
Dividends Per Share	Accoriding to Kasanen, et. al., (1996) dividend-based target earnings are positively related to management of earning and firm performance. However, Ahmed, Advani & Kanwal (2018) established that the dividend pay-out ratio and price earnings ratio exhibited a negative relation and positive convexity and vice-versa. Also, Mohammad, et. al. (2001) and Elshandidy et al., (2013) found a negative relationship between dividends per share and earnings management and firm performance.	Kasanen, et. al., (1996); Ahmed, Advani & Kanwal (2018); Mohammad, et. al. (2001); Elshandidy et al., (2013).

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