IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0290126.html
   My bibliography  Save this article

Common institutional investors and the quality of management earnings forecasts—Empirical and machine learning evidences

Author

Listed:
  • Shanshan Yang
  • Xiaohan Li
  • Zhenhua Jiang
  • Man Xiao

Abstract

Based on the data of the Chinese A-share listed firms in China Shanghai and Shenzhen Stock Exchange from 2014 to 2021, this article explores the relationship between common institutional investors and the quality of management earnings forecasts. The study used the multiple linear regression model and empirically found that common institutional investors positively impact the precision of earnings forecasts. This article also uses graph neural networks to predict the precision of earnings forecasts. Our findings have shown that common institutional investors form external supervision over restricting management to release a wide width of earnings forecasts, which helps to improve the risk warning function of earnings forecasts and promote the sustainable development of information disclosure from management in the Chinese capital market. One of the marginal contributions of this paper is that it enriches the literature related to the economic consequences of common institutional shareholding. Then, the neural network method used to predict the quality of management forecasts enhances the research method of institutional investors and the behavior of management earnings forecasts. Thirdly, this paper calls for strengthening information sharing and circulation among institutional investors to reduce information asymmetry between investors and management.

Suggested Citation

  • Shanshan Yang & Xiaohan Li & Zhenhua Jiang & Man Xiao, 2023. "Common institutional investors and the quality of management earnings forecasts—Empirical and machine learning evidences," PLOS ONE, Public Library of Science, vol. 18(10), pages 1-16, October.
    • Handle: RePEc:plo:pone00:0290126
    DOI: 10.1371/journal.pone.0290126
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0290126
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0290126&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0290126?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. José Azar & Martin C. Schmalz & Isabel Tecu, 2018. "Anticompetitive Effects of Common Ownership," Journal of Finance, American Finance Association, vol. 73(4), pages 1513-1565, August.
    2. He, Jie (Jack) & Huang, Jiekun & Zhao, Shan, 2019. "Internalizing governance externalities: The role of institutional cross-ownership," Journal of Financial Economics, Elsevier, vol. 134(2), pages 400-418.
    3. Santhosh Ramalingegowda & Steven Utke & Yong Yu, 2021. "Common Institutional Ownership and Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 208-241, March.
    4. Alex Edmans & Doron Levit & Devin Reilly, 2019. "Governance Under Common Ownership," The Review of Financial Studies, Society for Financial Studies, vol. 32(7), pages 2673-2719.
    5. Bipin Ajinkya & Sanjeev Bhojraj & Partha Sengupta, 2005. "The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 343-376, June.
    6. Sreedhar T. Bharath & Sudarshan Jayaraman & Venky Nagar, 2013. "Exit as Governance: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 68(6), pages 2515-2547, December.
    7. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    8. Alex Edmans & Gustavo Manso, 2011. "Governance Through Trading and Intervention: A Theory of Multiple Blockholders," The Review of Financial Studies, Society for Financial Studies, vol. 24(7), pages 2395-2428.
    9. Bayona, Anna & López, Ángel L. & Manganelli, Anton-Giulio, 2022. "Common ownership, corporate control and price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1066-1075.
    10. Samuel B. Bonsall & Zahn Bozanic & Paul E.. Fischer, 2013. "What Do Management Earnings Forecasts Convey About the Macroeconomy?," Journal of Accounting Research, Wiley Blackwell, vol. 51(2), pages 225-266, May.
    11. Park, Jihwon & Sani, Jalal & Shroff, Nemit & White, Hal, 2019. "Disclosure incentives when competing firms have common ownership," Journal of Accounting and Economics, Elsevier, vol. 67(2), pages 387-415.
    12. Kexing Ding & Bikki Jaggi, 2022. "CEO career concerns and the precision of management earnings forecasts," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 69-100, January.
    13. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    14. Chen, Yangyang & Li, Qingyuan & Ng, Jeffrey & Wang, Chong, 2021. "Corporate financing of investment opportunities in a world of institutional cross-ownership," Journal of Corporate Finance, Elsevier, vol. 69(C).
    15. José Azar & Xavier Vives, 2021. "Reply to: Comments on “General Equilibrium Oligopoly and Ownership Structure”," Econometrica, Econometric Society, vol. 89(3), pages 1061-1063, May.
    16. Cheng, Minying & Lin, Bingxuan & Lu, Rui & Wei, Minghai, 2020. "Non-controlling large shareholders in emerging markets: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 63(C).
    17. Yiwei Dou & Ole‐Kristian Hope & Wayne B. Thomas & Youli Zou, 2018. "Blockholder Exit Threats and Financial Reporting Quality," Contemporary Accounting Research, John Wiley & Sons, vol. 35(2), pages 1004-1028, June.
    18. Paul Hribar & Holly Yang, 2016. "CEO Overconfidence and Management Forecasting," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 204-227, March.
    19. Lewellen, Katharina & Lowry, Michelle, 2021. "Does common ownership really increase firm coordination?," Journal of Financial Economics, Elsevier, vol. 141(1), pages 322-344.
    20. repec:eme:mfppss:mf-12-2019-0623 is not listed on IDEAS
    21. Ward, Charles & Yin, Chao & Zeng, Yeqin, 2018. "Institutional investor monitoring motivation and the marginal value of cash," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 49-75.
    22. Wang, Qijian & Zhou, Kaiguo, 2022. "Common ownership and the spillover effect of market reaction: Evidence from stock exchange comment letters," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    23. Song Zhu & Haijie Huang & William Bradford, 2022. "The governance role of institutional investors in management compensation: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1015-1063, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Shuangjin & Zhang, Xiaoqian & Cebula, Richard J. & Foley, Maggie, 2024. "Cross-shareholding, Managerial capabilities, and Strategic risk-taking in enterprises: A game or a win-win?," Finance Research Letters, Elsevier, vol. 62(PB).
    2. Chen, Shenglan & Ma, Hui & Wu, Qiang & Zhang, Hao, 2023. "Does common ownership constrain managerial rent extraction? Evidence from insider trading profitability," Journal of Corporate Finance, Elsevier, vol. 80(C).
    3. Hamza Nizar & Taher Hamza & Faten Lakhal, 2024. "How does institutional cross‐ownership affect firm productivity? The importance of the corporate social responsibility channel," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1988-2010, April.
    4. Tian, Haowen & Wang, Junkai & Wu, Sirui, 2024. "Supply chain vertical common ownership and cost of loans," Journal of Corporate Finance, Elsevier, vol. 89(C).
    5. Kristopher Gerardi & Michelle Lowry & Carola Schenone, 2023. "A Critical Review of the Common Ownership Literature," FRB Atlanta Working Paper 2023-17, Federal Reserve Bank of Atlanta.
    6. Dai, Jingwen & Xu, Rong & Zhu, Tianqi & Lu, Chao, 2024. "Common institutional ownership and opportunistic insider selling: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    7. Zhang, Han & Li, Minghui & Yang, Yujie, 2024. "Does common institutional ownership constrain related party transactions? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 1015-1042.
    8. Mou, Shaobo & Yi, Sijia & Zhang, Qiufeng & Liu, Danping, 2025. "Common institutional ownership and executive pay-performance sensitivity: Mediating role of information transparency and fund occupation," Research in International Business and Finance, Elsevier, vol. 74(C).
    9. Dasgupta, Amil & Fos, Vyacheslav & Sautner, Zacharias, 2021. "Institutional investors and corporate governance," LSE Research Online Documents on Economics 112114, London School of Economics and Political Science, LSE Library.
    10. Khoo, Joye & Zheng, Chen & Pathan, Shams, 2024. "The beneficial effect of common ownership: Evidence from bank liquidity creation," Journal of Banking & Finance, Elsevier, vol. 163(C).
    11. Hou, Canran & Liu, Huan, 2023. "Institutional cross-ownership and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 65(C).
    12. Zhu, Siyuan & Lu, Rong & Xu, Tianli & Wu, Wenbin & Chen, Yang, 2024. "Can common institutional owners inhibit bad mergers and acquisitions? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 246-266.
    13. Lu, Chao & Zhu, Tianqi & Xia, Xiaoxue & Zhao, Ziying & Zhao, Yiwen, 2024. "Common institutional ownership and corporate green investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 1123-1149.
    14. Xiaohui Wu & Yumin Li & Chong Feng, 2023. "Green innovation peer effects in common institutional ownership networks," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 641-660, March.
    15. Ziwei Wang & Chunfeng Wang & Zhenming Fang, 2024. "Learning from Failures of Co-owned Firms: Common Ownership and Information Disclosure Fraud," Journal of Business Ethics, Springer, vol. 195(1), pages 95-119, November.
    16. Li, Yumin & Zhu, Lei & Ke, Yanrong & Wu, Xiaohui, 2024. "Does common institutional ownership restrain corporate financialization?," International Review of Economics & Finance, Elsevier, vol. 95(C).
    17. Gibbon, Alexandra J. & Schain, Jan Philip, 2023. "Rising markups, common ownership, and technological capacities," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    18. Hennig, Jan C. & Oehmichen, Jana & Steinberg, Philip J. & Heigermoser, Judith, 2022. "Determinants of common ownership: Exploring an information-based and a competition-based perspective in a global context," Journal of Business Research, Elsevier, vol. 144(C), pages 690-702.
    19. Fengguang Lyu & Zhiping Zhang & Guangxin Fu & Zhangxin (Frank) Liu & Sirimon Treepongkaruna, 2024. "Multiple shareholding institutional investors and green governance of heavy‐polluting industries," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3569-3587, May.
    20. Ni, Xiaoran & Yin, David, 2023. "Is institutional common ownership commonly priced? Insights from the cost of equity capital," Journal of Banking & Finance, Elsevier, vol. 155(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0290126. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.