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Institutional Ownership Composition and Earnings Management

Institutional Ownership Composition and Earnings Management This paper examines the impact of outside block-holders on earnings management, using discretionary accounting accruals as the measure of earnings management. For the income-decreasing earnings management scenario, we do not find significant results. This may be attributable to the different natures and time horizons of outside block-holders. Since the majority of outside block-holders are institutional investors, we then investigate the relationship between ownership by institutional investors with different natures and earnings management. Specifically, we find a significant positive relationship between ownership by transient institutional investors (holding diversified portfolios with high turnover) and discretionary accounting accruals. However, we do not find a significant relationship between ownership by dedicated institutional investors (holding concentrated portfolios with low turnover) and discretionary accounting accruals. Therefore, due to the differing natures of institutional investors, we may not treat them as a homogeneous group. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Pacific Basin Financial Markets and Policies World Scientific Publishing Company

Institutional Ownership Composition and Earnings Management

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References (36)

Publisher
World Scientific Publishing Company
Copyright
Copyright ©
ISSN
0219-0915
eISSN
1793-6705
DOI
10.1142/S0219091512500221
Publisher site
See Article on Publisher Site

Abstract

This paper examines the impact of outside block-holders on earnings management, using discretionary accounting accruals as the measure of earnings management. For the income-decreasing earnings management scenario, we do not find significant results. This may be attributable to the different natures and time horizons of outside block-holders. Since the majority of outside block-holders are institutional investors, we then investigate the relationship between ownership by institutional investors with different natures and earnings management. Specifically, we find a significant positive relationship between ownership by transient institutional investors (holding diversified portfolios with high turnover) and discretionary accounting accruals. However, we do not find a significant relationship between ownership by dedicated institutional investors (holding concentrated portfolios with low turnover) and discretionary accounting accruals. Therefore, due to the differing natures of institutional investors, we may not treat them as a homogeneous group.

Journal

Review of Pacific Basin Financial Markets and PoliciesWorld Scientific Publishing Company

Published: Dec 1, 2012

Keywords: Institutional ownership transient institutional investors dedicated institutional investors earnings management

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