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Institutional investors, shareholder activism, and earnings management

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  • Hadani, Michael
  • Goranova, Maria
  • Khan, Raihan
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    Abstract

    The widespread practice of earnings management adversely impacts the quality of financial reports and increases information asymmetries between owners and managers. The present study investigates the effect of shareholder activism (as expressed by the proxy proposals sponsored by shareholders), and monitoring by the largest institutional owner on earnings management. Our longitudinal analyses indicate that the number of shareholder proposals received by firms is positively related to subsequent earnings management, yet concurrently, monitoring by the largest institutional owners is negatively related to earnings management. Our findings shed light on the equivocal results reported by prior research regarding the impact of shareholder activism on firm performance, on one hand, and ownership monitoring and performance, on the other.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 64 (2011)
    Issue (Month): 12 ()
    Pages: 1352-1360

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    Handle: RePEc:eee:jbrese:v:64:y:2011:i:12:p:1352-1360

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

    Related research

    Keywords: Shareholder activism; Largest institutional owner; Earnings management; Agency theory;

    References

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    Cited by:
    1. 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.
    2. Ge, Wenxia & Kim, Jeong-Bon, 2014. "Real earnings management and the cost of new corporate bonds," Journal of Business Research, Elsevier, vol. 67(4), pages 641-647.
    3. Marta Cristina Pelucio Grecco, 2013. "The Effect of Brazilian convergence to IFRS on earnings managment by listed Brazilian nonfinancial companies," Brazilian Business Review, Fucape Business School, vol. 10(4), pages 110-132, October.
    4. Ding, Rong & Hou, Wenxuan & Kuo, Jing-Ming & Lee, Edward, 2013. "Fund ownership and stock price informativeness of Chinese listed firms," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 166-185.

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