The Effects of Blockholder Dispersion on the Informativeness of Earnings: Evidence from Korea

Jae Eun Shin, Seung-Weon Yoo and Gun Lee
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Jae Eun Shin: College of Business, Dongguk University, 30, Pildong-ro 1-gil, Jung-gu, Seoul 04620, Korea
Seung-Weon Yoo: Korea University Business School, 145 Anam-ro, Seongbuk-gu, Seoul 02841, Korea
Gun Lee: Accounting Department, Changwon National University, 20, Changwondaehak-ro, Uichang-gu, Changwon-si, Gyeongsangnam-do 51140, Korea

Sustainability, 2020, vol. 12, issue 22, 1-18

Abstract: This paper studies the relationship between blockholder dispersion and the informativeness of earnings using a sample of Korean companies. Investors prefer less volatile and more sustainable earnings and managers have incentives to manage earnings to meet investor demand. We show evidence that firms with dispersed ownership, which are likely to suffer from high levels of information asymmetry, smooth earnings in order to relieve investors’ concerns regarding information asymmetry. Furthermore, our regression analyses on the relation between returns and future earnings reveal that earnings smoothing conducted by firms with dispersed ownership leads to higher informativeness of earnings. This study provides important implications for various financial statement users in interpreting firms’ earnings sustainability, especially in the East Asian countries where a wide spectrum of ownership concentration structure exists.

Keywords: ownership structure; earnings sustainability; informativeness of earnings (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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