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Institutional ownership stability and real earnings management

Hamid Sakaki (), Dave Jackson () and Surendranath Jory ()
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Hamid Sakaki: University of Texas Rio Grande Valley
Dave Jackson: University of Texas Rio Grande Valley
Surendranath Jory: University of Sussex

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 1, 227-244

Abstract: Abstract We examine the relationship between institutional ownership stability and real earnings management. Our findings indicate that firms held by more stable institutional owners experience lower real activities manipulation by limiting overproduction. We further examine how the stability in the shareholdings of pressure-sensitive and insensitive institutional investors affect target firms’ use of real earnings management, respectively. Unlike pressure-sensitive institutional investors, the stability in the share ownership of pressure-insensitive institutional investors (i.e., investment advisors, pension funds and endowments) mitigates target firms’ use of real earnings management. Overall, our results are consistent with the view that institutional investors presence acts as a monitor on target firms’ use of real earnings manipulation activities.

Keywords: Institutional investors; Earnings management; Institutional ownership stability; Real activities manipulations; Institutional ownership persistence; Real earnings management (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2017
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