Institutional investors, shareholder activism, and earnings management
AbstractThe 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 InfoArticle provided by Elsevier in its journal Journal of Business Research.
Volume (Year): 64 (2011)
Issue (Month): 12 ()
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Web page: http://www.elsevier.com/locate/jbusres
Shareholder activism; Largest institutional owner; Earnings management; Agency theory;
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