Capital market pressure, real earnings management, and institutional ownership stability - Evidence from Poland

Michał Kałdoński, Tomasz Jewartowski and Jacek Mizerka

International Review of Financial Analysis, 2020, vol. 71, issue C

Abstract: This study investigates whether and how institutional ownership stability influences real earnings management. We find that institutional investors holding stable equity stakes play an important monitoring role in reducing real earnings management by managers pressured by capital market forces to “meet or beat” earnings targets. We also document no relationship between institutional ownership stability and real earnings management in companies with entrenched managers protected from capital market pressure by a dual-class ownership structure. Our findings of the negative association between real earnings management and institutional ownership stability also indicate that firms with more stable ownership are engaged in lesser sales manipulation and overproduction. In addition, we reveal that pressureresistant institutions (pension funds and mutual funds) that reduce real earnings management are an essential part of the external governance mechanism in an emerging economy.

Keywords: Earnings management; Institutional investors; Institutional ownership stability; Corporate governance; Capital market pressure; Emerging markets (search for similar items in EconPapers)
JEL-codes: G10 G30 M40 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s1057521918305921

DOI: 10.1016/j.irfa.2019.01.009

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