Financial institutional blockholders and earnings quality: Do blockholders contestability and countries' institutions matter?

Quoc Dat Trinh, Christian Haddad and Elie Salameh

International Review of Financial Analysis, 2023, vol. 87, issue C

Abstract: We examine the relationship between financial earnings quality and block ownership by institutional investors. This relation is vital given the tremendous growth of institutional ownership and the significant influence of large institutional blockholders on financial earnings quality. Our findings indicate that the presence of institutional blockholders drives higher financial earnings quality. Results from an instrumental variable (IV) approach suggest our documented effects are directional. Next, cross-sectional tests prove that the relationship is more pronounced among firms adopting IFRS and those in countries with minority shareholder protection. Moreover, our results reveal that property rights and the lack of contestability partially mitigate the positive association between institutional ownership and earnings quality. Our findings inform the ongoing debate on the influence of institutional ownership on earnings, which institutional and regulatory dimensions affect earnings, and through what channels these effects run. Overall, our results suggest that beyond corporate governance practices that enhance financial earnings quality, different countries' institutions and regulations settings influence the relation of institutional ownership to earnings quality.

Keywords: Financial earnings quality; Institutional financial investors; Property rights; Investors protection; IFRS; Block ownership (search for similar items in EconPapers)
JEL-codes: G23 G3 G32 G38 O16 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s105752192300128x

DOI: 10.1016/j.irfa.2023.102612

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