THE EFFECT OF INSTITUTIONAL OWNERSHIP ON THE REPORTING OF CONSERVATIVE EARNINGS

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Uma Velury, David S. Jenkins ORCID logo

https://doi.org/10.22495/cocv4i4c3p1

Abstract

Given the spate of financial reporting scandals and enactment of the Sarbanes-Oxley Act of 2002 following the stock market crash of 1999, we examine the role of institutional monitoring as it pertains to reporting conservatism. Using the Basu (1997) asymmetric timeliness models, we examine the relation between institutional ownership and the conservatism of reported earnings, as defined by the asymmetric timeliness measures. Our results indicate that larger institutional holdings are associated with a decrease in earnings conservatism. We attribute these findings in part to the incentives of large institutional investors to capitalize on private information obtained through their role as corporate monitors. As such, it may be unlikely that large investors would not encourage the timely reporting of bad news.

Keywords: Ownership Structure, Earnings, Reporting

How to cite this paper: Velury, U., & Jenkins, D. S. (2007). The effect of institutional ownership on the reporting of conservative earnings. Corporate Ownership & Control, 4(4-3), 338-344. https://doi.org/10.22495/cocv4i4c3p1