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Institutional investors and conservative financial reporting: evidence from China

Author

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  • Yue Chen
  • Lingxiang Li
  • Haizhi Wang
  • Peng Wang

Abstract

Using a sample of listed firms in China from 2008 to 2011, we investigate the relation between institutional ownership and firm accounting conservatism. We find that higher level of equity ownership by institutional investors is associated with less conservative financial reporting. We also document that firms with long-horizon institutions engage in less conservative financial reporting. We further test the effects of interaction terms between institutional holdings and investor investment horizons, and our results reveals that with higher level of institutional holdings and more long-term institutional investors, firms are more likely to engage in less conservative reporting policy. Our evidence is contrary to the findings based on US firms, but in line with the price manipulation motive by institutional investors due to short-sales constraints in China. Copyright Eurasia Business and Economics Society 2015

Suggested Citation

  • Yue Chen & Lingxiang Li & Haizhi Wang & Peng Wang, 2015. "Institutional investors and conservative financial reporting: evidence from China," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 161-178, June.
    • Handle: RePEc:spr:eurase:v:5:y:2015:i:1:p:161-178
    DOI: 10.1007/s40822-015-0020-y
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    Cited by:

    1. Tina T. He & Wilson X. B. Li & Gordon Y. N. Tang, 2019. "Foreign institutional investors and stock price synchronicity of Chinese listed firms: further evidence," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(1), pages 107-120, March.
    2. Farzaneh Nassir Zadeh & Davood Askarany & Solmaz Arefi Asl, 2022. "Accounting Conservatism and Earnings Quality," JRFM, MDPI, vol. 15(9), pages 1-18, September.
    3. Ali, Muhammad Jahangir & Biswas, Pallab Kumar & Chapple, Larelle & Kumarasinghe, Sriyalatha, 2024. "Institutional ownership and earnings quality: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    4. Ning Liu & Wei Xu, 2017. "Stock liquidity on China NEEQ exchange," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(2), pages 255-275, August.
    5. Jonathan Batten & Xuan Vinh Vo, 2019. "Liquidity And Firm Value In An Emerging Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(02), pages 365-376, March.
    6. Dan Zhang & Shiguang Ma & Xiaofei Pan, 2023. "How do institutional investors influence accounting conservatism in China?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S2), pages 2719-2754, June.

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    More about this item

    Keywords

    Institutional holdings; Investment horizons; Accounting conservatism; China; G2; G3; M41;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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