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Is institutional monitoring time-varying? Evidence from the Korean market

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  • Kim, Kyung Soon
  • Chung, Chune Young
  • Liu, Chang

Abstract

This study investigates whether the effectiveness of institutional monitoring varies with economic conditions in Korea, an emerging market. We analyze the impact of the institutional trading activities on corporate earnings management. In particular, we examine whether the association between the two varies with the economy's expectation of market growth (based on the prevailing expectations before and after the 2008 financial crisis). The results show that firms with a high intensity of institutional investor trading tend to manage their earnings using accruals. In addition, in a market with low growth prospects, less effective institutional monitoring increases the likelihood of opportunistic earnings reporting by management.

Suggested Citation

  • Kim, Kyung Soon & Chung, Chune Young & Liu, Chang, 2020. "Is institutional monitoring time-varying? Evidence from the Korean market," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612318304719
    DOI: 10.1016/j.frl.2018.10.021
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    More about this item

    Keywords

    Accounting earnings management; Monitoring effectiveness; Short-term investment preference; Market condition; Emerging market;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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