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Institutional ownership stability and real earnings management

Author

Listed:
  • Hamid Sakaki

    (University of Texas Rio Grande Valley)

  • Dave Jackson

    (University of Texas Rio Grande Valley)

  • Surendranath Jory

    (University of Sussex)

Abstract

We examine the relationship between institutional ownership stability and real earnings management. Our findings indicate that firms held by more stable institutional owners experience lower real activities manipulation by limiting overproduction. We further examine how the stability in the shareholdings of pressure-sensitive and insensitive institutional investors affect target firms’ use of real earnings management, respectively. Unlike pressure-sensitive institutional investors, the stability in the share ownership of pressure-insensitive institutional investors (i.e., investment advisors, pension funds and endowments) mitigates target firms’ use of real earnings management. Overall, our results are consistent with the view that institutional investors presence acts as a monitor on target firms’ use of real earnings manipulation activities.

Suggested Citation

  • Hamid Sakaki & Dave Jackson & Surendranath Jory, 2017. "Institutional ownership stability and real earnings management," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 227-244, July.
    • Handle: RePEc:kap:rqfnac:v:49:y:2017:i:1:d:10.1007_s11156-016-0588-7
    DOI: 10.1007/s11156-016-0588-7
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    More about this item

    Keywords

    Institutional investors; Earnings management; Institutional ownership stability; Real activities manipulations; Institutional ownership persistence; Real earnings management;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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