The attention of long‐term institutional investors and timely loss recognition

Rui Wang

Journal of Business Finance & Accounting, 2021, vol. 48, issue 9-10, 1596-1629

Abstract: In this paper, I investigate the role of long‐term institutional investors in firms’ accounting conservatism. Using exogenous shocks to the attention of long‐term institutional investors, I find significantly less timely loss recognition at the time of long‐term institutional investors’ distraction. The decrease in loss recognition timeliness is more pronounced among firms with lower information asymmetry ex‐ante, firms lacking other governance mechanisms that can effectively monitor managers and firms operating in non‐competitive industries, where lack of competitive pressure weakens the strategic considerations of timely loss recognition. Further analysis identifies the reporting of special items as a potential mechanism through which firms adjust the timeliness of loss recognition in response to changes in long‐term institutional investors’ attention.

Date: 2021
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