The role of institutional shareholders in the relationship between unconditional conservatism and earnings management
Open Access
- 12 October 2021
- journal article
- Published by Virtus Interpress in Corporate Ownership and Control
- Vol. 19 (1), 94-104
- https://doi.org/10.22495/cocv19i1art8
Abstract
This study investigates whether and how institutional shareholders affect the relation between unconditional conservatism and earnings management. We analyze the relation between unconditional conservatism and accrual-based earnings management and the relation between unconditional conservatism and real earnings management, focusing on the role of the institutional shareholders variable in these two relations. First, we find evidence of positive (negative) relations between unconditional conservatism and accrual-based (real) earnings management. Second, we demonstrate that the presence of institutional shareholders has a mitigating (amplifying) impact on the relation between unconditional conservatism and accrual-based (real) earnings management. This study contributes to enrich the previous literature in two ways. First, it extends the strand of research on the relation between accounting conservatism and earnings management (Garcìa Lara, García Osma, & Penalva, 2020; Chen, Hemmer, & Zhang, 2007; Gao, 2013), focusing on unconditional conservatism since it is less prevalent than conditional conservatism in previous literature (Ruch & Taylor, 2015). Second, it extends the strand of research on the impact of institutional ownership on accounting practices (Farooq & El Jai, 2012; Sakaki, Jackson, & Jory, 2017), highlighting the role of the institutional shareholders in the relation between unconditional conservatism and earnings managementKeywords
This publication has 42 references indexed in Scilit:
- Evidence on the Trade-Off between Real Activities Manipulation and Accrual-Based Earnings ManagementThe Accounting Review, 2011
- The Allowance for Uncollectible Accounts, Conservatism, and Earnings ManagementJournal of Accounting Research, 2010
- The Economic Determinants of Conditional ConservatismJournal of Business Finance & Accounting, 2009
- On the Relation between Conservatism in Accounting Standards and Incentives for Earnings ManagementJournal of Accounting Research, 2007
- The Link between Earnings Conservatism and the Price‐to‐Book Ratio*Contemporary Accounting Research, 2005
- Discussion of On the Asymmetric Recognition of Good and Bad News in France, Germany and the United KingdomJournal of Business Finance & Accounting, 2001
- Biases and Lags in Book Value and Their Effects on the Ability of the Book-to-Market Ratio to Predict Book Return on EquityJournal of Accounting Research, 2000
- Uncertainty Resolution and the Theory of Depreciation MeasurementJournal of Accounting Research, 1996
- Large Shareholders and Corporate ControlJournal of Political Economy, 1986
- Theory of the firm: Managerial behavior, agency costs and ownership structureJournal of Financial Economics, 1976