Institutional ownership composition and accounting conservatism
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This study empirically investigates the association between institutional ownership composition and accounting conservatism. Transient (dedicated) institutional investors, holding diversified (concentrated) portfolios with high (low) portfolio turnover, focus on portfolio firms’ short-term (long-term) perspectives and trade heavily (generally do not trade) on current earnings news. Thus, I predict that as transient (dedicated) institutional ownership increases, firms will exhibit a lower (higher) degree of accounting conservatism. Consistent with my predictions, in the context of asymmetric timeliness of earnings, I document that as the level of transient (dedicated) institutional ownership increases, earnings become less (more) asymmetrically timely in recognizing bad news.
KeywordsInstitutional investors Accounting conservatism Corporate governance
This paper is based on my dissertation at Boston University. I thank my dissertation chairman, Professor Krishnagopal Menon, for his continuous guidance in the development of this paper. I also thank other members of my dissertation committee—Professor Kumar Sivakumar and Professor Jacob Oded—as well as Professor Brian Bushee for providing access to the institutional investor classifications used throughout this study.
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