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Institutional ownership and conservatism

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  • Ramalingegowda, Santhosh
  • Yu, Yong
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    Abstract

    Recent research suggesting that shareholders demand conservative financial reporting raises the question: Which shareholders demand conservatism? We find that higher ownership by institutions that are likely to monitor managers is associated with more conservative financial reporting. This positive association is more pronounced among firms with more growth options and higher information asymmetry, where direct monitoring is more difficult and the potential governance benefits of conservatism are greater. Further, lead-lag tests of the direction of causality suggest that ownership by monitoring institutions leads to more conservative reporting, rather than the reverse. Collectively, these results are consistent with monitoring institutions demanding conservatism.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 53 (2012)
    Issue (Month): 1 ()
    Pages: 98-114

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    Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:98-114

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

    Related research

    Keywords: Accounting conservatism; Institutional investors; Monitoring incentives;

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    Cited by:
    1. Gérald Lobo & Luc Paugam & Lana Zhang & Jean-François Casta, 2013. "Effect Of Joint Auditor Pair On Conserv A Tism: Evidence From Impairment Tests," Post-Print hal-00993007, HAL.
    2. Lawrence, Alastair & Sloan, Richard & Sun, Yuan, 2013. "Non-discretionary conservatism: Evidence and implications," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 112-133.
    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. 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.
    5. Roychowdhury, Sugata & Martin, Xiumin, 2013. "Understanding discretion in conservatism: An alternative viewpoint," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 134-146.

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