Large Shareholders and the Pressure to Manage Earnings
Journal of Corporate Finance, Vol. 16, pp. 302-319
45 Pages Posted: 14 Oct 2009 Last revised: 4 Jun 2012
Date Written: September 19, 2009
We present empirical evidence that firms inflate earnings around seasoned equity offerings in the presence of large outsider blockholdings, but not in their absence. The finding is robust to several alternative explanations, including differences in firm characteristics, growth, performance, CEO incentives, and capital usage. While we do not dispute that CEOs behave opportunistically, we challenge that earnings management is solely a symptom of weak governance. We conclude that strengthening shareholder power to alleviate the conflict between shareholders and management can also have the unintended consequence of intensifying the conflict between current and future shareholders.
Keywords: blockholder monitoring, corporate governance, earnings management, equity offerings, insider-outsider conflict
JEL Classification: G30, G32, G34, M41
Suggested Citation: Suggested Citation