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

Journal of Economics, Finance and Administrative Science, 2023-12, Vol.28 (56), p.218-236 [Peer Reviewed Journal]

COPYRIGHT 2023 Universidad ESAN, Peru ;Justin G. Davis and Miguel García-Cestona. This work is published under http://creativecommons.org/licences/by/4.0/legalcode (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 2218-0648 ;ISSN: 2077-1886 ;EISSN: 2077-1886 ;DOI: 10.1108/JEFAS-01-2023-0021

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Title:
Institutional ownership, earnings management and earnings surprises: Evidence from 39 years of U.S. data
Author: Davis, Justin G ; García Cestona, Miguel Angel
Subjects: Accounting ; Accuracy ; Corporate governance ; Decision making ; Earnings ; Earnings management ; Earnings surprises ; Financial disclosure ; Financial reporting quality ; Financial statements ; Forecasts and trends ; Influence ; Institutional investments ; Institutional investor ownership ; Investors ; Nonlinearity ; Ownership ; Production costs ; Profits ; R&D ; Research & development ; Stockholders
Is Part Of: Journal of Economics, Finance and Administrative Science, 2023-12, Vol.28 (56), p.218-236
Description: 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.
Publisher: Bingley: Emerald Publishing Limited
Language: English;Spanish
Identifier: ISSN: 2218-0648
ISSN: 2077-1886
EISSN: 2077-1886
DOI: 10.1108/JEFAS-01-2023-0021
Source: DOAJ Directory of Open Access Journals

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

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