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Overlapping institutional ownership along the supply chain and earnings management of supplier firms

Author

Listed:
  • Gao, Lei
  • Han, Jianlei
  • Kim, Jeong-Bon
  • Pan, Zheyao

Abstract

We explore the impact of overlapping institutional ownership (OIO) within supply chains on the earnings management practices of supplier firms. Utilizing a dataset of U.S. publicly traded supplier firms from 1988 to 2016, we discover that suppliers with institutional ownership overlapping with their major customers exhibit reduced levels of discretionary accruals. This finding implies that such overlap discourages suppliers from engaging in upward earnings management through the manipulation of discretionary accruals. We also find that OIO curtails accrual-based earnings management by enhancing the relationship between supply chain partners and bolstering external monitoring. Additionally, we find that OIO also mitigates the extent of real earnings management undertaken by the supplier firm. These findings remain robust after addressing potential endogeneity concerns. Our results underscore the significant role of OIO within supply chains in curbing both accrual-based and real earnings management by supplier firms.

Suggested Citation

  • Gao, Lei & Han, Jianlei & Kim, Jeong-Bon & Pan, Zheyao, 2024. "Overlapping institutional ownership along the supply chain and earnings management of supplier firms," Journal of Corporate Finance, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:corfin:v:84:y:2024:i:c:s0929119923001694
    DOI: 10.1016/j.jcorpfin.2023.102520
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    More about this item

    Keywords

    Supply chain; Overlapping institutional ownership; Earnings management; Institutional investors;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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