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Institutional ownership and monitoring: Evidence from financial misreporting

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  • Burns, Natasha
  • Kedia, Simi
  • Lipson, Marc
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    Abstract

    We find that the likelihood and severity of financial misreporting is positively related to aggregate institutional ownership and this effect can be largely attributed to ownership by institutions with short investment horizons -- those with little incentive to engage in costly monitoring of firm activities and precisely those that sell at the announcement of a restatement. We also find that the concentration of holdings by these institutions offsets this effect, which suggests concentrated ownership induces greater monitoring and mitigates the incentives for firms to misreport. Our results suggest that any link between myopic firm decision making and institutional ownership may be related to the nature of institutional monitoring.

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    File URL: http://www.sciencedirect.com/science/article/B6VFK-508PPPP-2/2/c45204cf16f9475ac96d1306f96ec4f4
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 16 (2010)
    Issue (Month): 4 (September)
    Pages: 443-455

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    Handle: RePEc:eee:corfin:v:16:y:2010:i:4:p:443-455

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Institutional investors Earnings management Restatements Monitoring;

    References

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    Cited by:
    1. Ertugrul, Mine & Krishnan, Karthik, 2011. "Can CEO dismissals be proactive?," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 134-151, February.
    2. Aman, Hiroyuki & Nguyen, Pascal, 2013. "Does good governance matter to debtholders? Evidence from the credit ratings of Japanese firms," Research in International Business and Finance, Elsevier, vol. 29(C), pages 14-34.
    3. Tung-Hao Lee & Jiun-Kai Huang, 2013. "Financial Liberalization, Foreign Ownership and Corporate Operational Efficiency: The Case of Taiwan Market," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 34-47, August.
    4. Yves Mard & Sylvain Marsat, 2011. "Gestion des résultats comptables et structure de l'actionnariat : le cas français," Post-Print hal-00650550, HAL.
    5. Bajo, Emanuele & Barbi, Massimiliano & Bigelli, Marco & Hillier, David, 2013. "The role of institutional investors in public-to-private transactions," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4327-4336.

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