Institutional investors, shareholder activism, and earnings management

Michael Hadani, Maria Goranova and Raihan Khan

Journal of Business Research, 2011, vol. 64, issue 12, 1352-1360

Abstract: The widespread practice of earnings management adversely impacts the quality of financial reports and increases information asymmetries between owners and managers. The present study investigates the effect of shareholder activism (as expressed by the proxy proposals sponsored by shareholders), and monitoring by the largest institutional owner on earnings management. Our longitudinal analyses indicate that the number of shareholder proposals received by firms is positively related to subsequent earnings management, yet concurrently, monitoring by the largest institutional owners is negatively related to earnings management. Our findings shed light on the equivocal results reported by prior research regarding the impact of shareholder activism on firm performance, on one hand, and ownership monitoring and performance, on the other.

Keywords: Shareholder activism; Largest institutional owner; Earnings management; Agency theory (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (59)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:64:y:2011:i:12:p:1352-1360

DOI: 10.1016/j.jbusres.2010.12.004

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