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Institutional ownership and conservatism

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  • Ramalingegowda, Santhosh
  • Yu, Yong

Abstract

Recent research suggesting that shareholders demand conservative financial reporting raises the question: Which shareholders demand conservatism? We find that higher ownership by institutions that are likely to monitor managers is associated with more conservative financial reporting. This positive association is more pronounced among firms with more growth options and higher information asymmetry, where direct monitoring is more difficult and the potential governance benefits of conservatism are greater. Further, lead-lag tests of the direction of causality suggest that ownership by monitoring institutions leads to more conservative reporting, rather than the reverse. Collectively, these results are consistent with monitoring institutions demanding conservatism.

Suggested Citation

  • Ramalingegowda, Santhosh & Yu, Yong, 2012. "Institutional ownership and conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 98-114.
    • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:98-114
    DOI: 10.1016/j.jacceco.2011.06.004
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    More about this item

    Keywords

    Accounting conservatism; Institutional investors; Monitoring incentives;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G2 - Financial Economics - - Financial Institutions and Services
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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