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

• Autores: Justin G. Davis, Miguel Ángel García Cestona
• Localización: Journal of Economics, Finance and Administrative Science, ISSN-e 2218-0648, ISSN 2077-1886, Vol. 28, Nº. 56, 2023, págs. 218-236
• Idioma: inglés
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• Resumen

  • 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.