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Foreign institutional ownership and demand for accounting conservatism: evidence from an emerging market

Author

Listed:
  • Mohamed Khalil

    () (University of Hull
    Tanta University)

  • Aydin Ozkanc

    () (University of Huddersfield)

  • Yilmaz Yildiz

    () (University of Huddersfield)

Abstract

This study investigates how foreign institutional ownership interacts with accounting conservatism in an emerging market setting. We posit that weak investor protection and a high degree of information asymmetry between insiders and outside investors increase demand for conservative reporting in firms operating in emerging markets. Foreign investors in this setting have informational disadvantages relative to their domestic peers and have difficulties in getting access to data. Using a sample of Turkish firms, we find that foreign institutions (particularly foreign corporate investors) demand more conservative reporting in the investee firms. Moreover, we show that this association is more pronounced among firms with greater asymmetric information problems and growth opportunities. Our additional tests reveal that the direction of causality flows from foreign institutional ownership to conservatism, and not vice versa.

Suggested Citation

  • Mohamed Khalil & Aydin Ozkanc & Yilmaz Yildiz, 2020. "Foreign institutional ownership and demand for accounting conservatism: evidence from an emerging market," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 1-27, July.
  • Handle: RePEc:kap:rqfnac:v:55:y:2020:i:1:d:10.1007_s11156-019-00834-3
    DOI: 10.1007/s11156-019-00834-3
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    References listed on IDEAS

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    Keywords

    Accounting conservatism; Foreign ownership; Institutional investors; Emerging market;

    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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