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Does Institutional Blockholder Short‐Termism Lead to Managerial Myopia? Evidence from Income Smoothing

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  • Sang Jun Cho
  • Chune Young Chung
  • Chang Liu

Abstract

We examine institutional blockholders’ influence on income‐smoothing practices in the Korean market, which provides an interesting setting where family‐oriented chaebols dictate the corporate landscape and impede shareholder activism. The empirical results reveal that institutional shareholders with a short‐term (long‐term) investment horizon facilitate (constrain) managerial myopia. This positive (negative) association is most evident among firms with domestic institutional investors. Therefore, we argue that the presence of domestic institutional investors with transient investment goals incentivizes firms’ management to smooth out earnings.

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  • Sang Jun Cho & Chune Young Chung & Chang Liu, 2019. "Does Institutional Blockholder Short‐Termism Lead to Managerial Myopia? Evidence from Income Smoothing," International Review of Finance, International Review of Finance Ltd., vol. 19(3), pages 693-703, September.
    • Handle: RePEc:bla:irvfin:v:19:y:2019:i:3:p:693-703
    DOI: 10.1111/irfi.12219
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    Cited by:

    1. Qilong Cao & Meng Ju & Jinglei Li & Changbao Zhong, 2022. "Managerial Myopia and Long-Term Investment: Evidence from China," Sustainability, MDPI, vol. 15(1), pages 1-20, December.
    2. Lili Ding & Zhongchao Zhao & Lei Wang, 2020. "Executive Incentives Matter for Corporate Social Responsibility under Earnings Pressure and Institutional Investors Supervision," Sustainability, MDPI, vol. 12(6), pages 1-22, March.
    3. Ryan Krause & Michael C. Withers, 2022. "Propulsions Toward What Capes? Testing Normative Theory Through a Panorama of Consequences," Journal of Business Ethics, Springer, vol. 181(2), pages 317-333, November.

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