Institutional ownership, earnings management and earnings surprises: Evidence from 39 years of U.S. data

Artikel

Purpose - As the influence of institutional investors over managerial decision-making grows, so does the importance of understanding the effect of institutional investor ownership (IO) on firm outcomes. The authors take a comprehensive approach to studying the effect of IO on earnings management (EM). Design/methodology/approach The authors study the relation between IO and EM using a sample of 59,503 listed U.S. firm-year observations from 1981-2019. The authors proxy EM with earnings surprises and with accrual-based and real activity measures. The authors test for nonlinear relations and analyze changes resulting from the passage of the Sarbanes-Oxley Act. Findings The findings support a positive IO-EM relation overall, but show that the relation is dynamic and heavily context-dependent with evidence of nonlinearity. The authors also find evidence that IO positively affects accrual-based EM and real activities EM negatively. Originality/value To the authors' knowledge, this is the first study of the IO-EM relation to consider evidence of nonlinearity in the U.S. context, measuring changes to the relation over time, and with the use of several measures of EM.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Economics, Finance and Administrative Science ; ISSN: 2218-0648 ; Volume: 28 ; Year: 2023 ; Issue: 56 ; Pages: 218-236

Classification and Topics

• Classification: Wirtschaft ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Accounting
• Subject: Corporate governance ; Earnings management ; Earnings surprises ; Financial reporting quality ; Institutional investor ownership ; Nonlinearity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Davis, Justin G. ; García Cestona, Miguel Angel
• Event: Veröffentlichung
• (who): Emerald Publishing Limited
• (where): Bingley
• (when): 2023

Further information

• DOI: doi:10.1108/JEFAS-01-2023-0021
• Last update: 10.03.2025, 11:41 AM CET