A Rose has its Thorn: The role of institutional investors in SEO firms’ reporting behavior

Ruei-Shian Wu and Huai-Chun Lo

International Review of Economics & Finance, 2022, vol. 82, issue C, 530-554

Abstract: This study investigates whether monitoring by institutional investors mitigates or facilitates earnings management around seasoned equity offerings (SEOs). We also explore how the capital market reacts to the (monitoring/self-serving) effect of institutional investors on earnings management. Results suggest that active, rather than inactive, institutions effectively reduce real earnings manipulation around SEOs. However, when SEO firms with high active institutional ownership engage in real earnings management, the capital market adversely reacts to this monitoring malfunction. Results remain robust after considering endogeneity, corporate governance, and financial crises.

Keywords: Institutional investor; Accrual-based earnings management; Real activities earnings management; Seasoned equity offering (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:82:y:2022:i:c:p:530-554

DOI: 10.1016/j.iref.2022.07.004

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