Monitoring by Institutional Investors: Evidence from Ownership Changes and Trading Behavior Around Restatements
University of Texas at San Antonio - Department of Finance
Rutgers Business School
Marc L. Lipson
University of Virginia - Darden School of Business
We examine institutional ownership and financial reporting practices. We find that institutions sell a significantly large fraction of their holdings in the quarter of a restatement announcement, however, not in the days prior to or on the announcement day. Further, we find that the likelihood and magnitude of misstatement are positively related to the amount of institutional ownership, though negatively related to the size of the largest institutional holding. These results suggest that the presence of institutional investors create incentives to manage earnings and does not provide monitoring sufficient to predict or prevent restatements, though a significant blockholder may monitor the firm sufficiently to prevent misstatement. Nevertheless, there is evidence that firms that institutions buy on the announcement day subsequently outperform those that are sold suggesting that institutions may be familiar enough with firms to better evaluate the significance of a restatement announcement.
Number of Pages in PDF File: 34
Keywords: Large Shareholder monitoring, accounting restatementsworking papers series
Date posted: March 26, 2005
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.297 seconds