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Capital market pressure, real earnings management, and institutional ownership stability - Evidence from Poland

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  • Kałdoński, Michał
  • Jewartowski, Tomasz
  • Mizerka, Jacek

Abstract

This study investigates whether and how institutional ownership stability influences real earnings management. We find that institutional investors holding stable equity stakes play an important monitoring role in reducing real earnings management by managers pressured by capital market forces to “meet or beat” earnings targets. We also document no relationship between institutional ownership stability and real earnings management in companies with entrenched managers protected from capital market pressure by a dual-class ownership structure. Our findings of the negative association between real earnings management and institutional ownership stability also indicate that firms with more stable ownership are engaged in lesser sales manipulation and overproduction. In addition, we reveal that pressureresistant institutions (pension funds and mutual funds) that reduce real earnings management are an essential part of the external governance mechanism in an emerging economy.

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  • Kałdoński, Michał & Jewartowski, Tomasz & Mizerka, Jacek, 2020. "Capital market pressure, real earnings management, and institutional ownership stability - Evidence from Poland," International Review of Financial Analysis, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finana:v:71:y:2020:i:c:s1057521918305921
    DOI: 10.1016/j.irfa.2019.01.009
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    More about this item

    Keywords

    Earnings management; Institutional investors; Institutional ownership stability; Corporate governance; Capital market pressure; Emerging markets;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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