TY - JOUR
T1 - Do foreign institutional investors monitor opportunistic managerial behaviour? Evidence from real earnings management
AU - Gu, Xiaolong
AU - An, Zhe
AU - Chen, Chen
AU - Li, Donghui
N1 - Funding Information:
For helpful comments, we thank Dhruba Banjade, Steven Cahan, Morten Jensen, Haiyan Jiang, Jianlei Han, Wen He, Haoyu Gao, Terry Pan, Lei Shi, Mi Shen, Albert Tsang, Qie Ellie Yin, and Rencheng Wang; the conference participants at 2019 Financial Markets and Corporate Governance Conference, 2019 Asian Finance Association Conference, 2019 AAA Annual Meeting, and 2019 FMA Annual Meeting; and seminar presentations at Central University of Finance and Economics, Macquarie University, RMIT University, Shanghai Maritime University, Tongji University, and Xi'an Jiaotong‐Liverpool University. Li acknowledges financial support from the National Natural Science Foundation of China (Grant No: 71873058). Gu acknowledges financial support from the Natural Science Foundation of Guangdong Province of China (Grant No: 2021A515012648) and Key Research Project of Guangdong Provincial Audit Office (Grant No: 22GDSJZZ032007). All the errors remain ours.
Publisher Copyright:
© 2022 Accounting and Finance Association of Australia and New Zealand.
PY - 2023/3
Y1 - 2023/3
N2 - Employing a large sample of 13,860 firms in 41 economies from 2000 to 2017, we document that the ownership by foreign institutional investors (FIIs) is negatively associated with firms' real earnings management (REM) but unrelated to their accrual earnings management (AEM). We adopt a few identification strategies to tackle the endogeneity issues, including firm- and year-fixed effects regression, two-stage least squares (2SLS) regression, and difference-in-differences (DiD) estimation based on the passage of the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). In addition, we show that the role of FIIs in curbing REM is achieved through the expertise channel and the monitoring channel. These results suggest that when facing disadvantages in curbing AEM, FIIs make the most of their monitoring strengths by curbing firms' REM, where they have both incentives and capabilities to monitor. Overall, this study highlights the important role of FIIs in monitoring opportunistic managerial behaviour.
AB - Employing a large sample of 13,860 firms in 41 economies from 2000 to 2017, we document that the ownership by foreign institutional investors (FIIs) is negatively associated with firms' real earnings management (REM) but unrelated to their accrual earnings management (AEM). We adopt a few identification strategies to tackle the endogeneity issues, including firm- and year-fixed effects regression, two-stage least squares (2SLS) regression, and difference-in-differences (DiD) estimation based on the passage of the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). In addition, we show that the role of FIIs in curbing REM is achieved through the expertise channel and the monitoring channel. These results suggest that when facing disadvantages in curbing AEM, FIIs make the most of their monitoring strengths by curbing firms' REM, where they have both incentives and capabilities to monitor. Overall, this study highlights the important role of FIIs in monitoring opportunistic managerial behaviour.
KW - accrual earnings management
KW - foreign institutional investors
KW - real earnings management
UR - http://www.scopus.com/inward/record.url?scp=85139443445&partnerID=8YFLogxK
U2 - 10.1111/acfi.13015
DO - 10.1111/acfi.13015
M3 - Article
AN - SCOPUS:85139443445
SN - 0810-5391
VL - 63
SP - 317
EP - 351
JO - Accounting & Finance
JF - Accounting & Finance
IS - 1
ER -