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Managing Earnings Surprises in Japan: Perspectives from Main Bank Relationships and Institutional Ownership

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  • Bok Baik
  • Wooseok Choi

Abstract

In this study, we examine the impact of main bank relationships and institutional ownership on management's incentives to meet or beat analysts' expectations in Japan. We hypothesize that close main bank relationships reduce managers' incentives to meet or beat analysts' expectations since investors place less weight on the need to achieve capital market-based performance benchmarks. Consistent with our prediction, we find that firms with close main bank relationships are less likely to meet or beat analysts' expectations. In contrast, we find that the incidence of meeting or beating analysts' consensus forecasts is greater for firms with institutional shareholders, suggesting that such investors place greater importance on achieving capital market-based performance benchmarks. Overall, our findings support the notion that banks and institutional investors play a significant role in firms' financial reporting behavior. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Bok Baik & Wooseok Choi, 2010. "Managing Earnings Surprises in Japan: Perspectives from Main Bank Relationships and Institutional Ownership," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5-6), pages 495-517.
  • Handle: RePEc:bla:jbfnac:v:37:y:2010-06:i:5-6:p:495-517
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    1. repec:eee:mulfin:v:42-43:y:2017:i::p:56-73 is not listed on IDEAS
    2. Keishi Fujiyama & Makoto Kuroki, 2017. "Employee Downsizing and Accounting Choices: Evidence from Japan," Discussion Paper Series DP2017-06, Research Institute for Economics & Business Administration, Kobe University, revised Sep 2017.

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