Download this Paper Open PDF in Browser

Institutional Ownership and Conservatism

47 Pages Posted: 28 Jun 2011 Last revised: 29 Jun 2011

Santhosh Ramalingegowda

University of Georgia - Terry College of Business

Yong Yu

University of Texas at Austin

Date Written: June 27, 2011

Abstract

Recent research suggesting that shareholders demand conservative financial reporting raises the question: Which shareholders demand conservatism? We find that higher ownership by institutions that are likely to monitor managers is associated with more conservative financial reporting. This positive association is more pronounced among firms with more growth options and higher information asymmetry, where direct monitoring is more difficult and the potential governance benefits of conservatism are greater. Further, lead-lag tests of the direction of causality suggest that ownership by monitoring institutions leads to more conservative reporting, rather than the reverse. Collectively, these results are consistent with monitoring institutions demanding conservatism.

Keywords: Accounting Conservatism, Institutional Investors, Monitoring Incentives

JEL Classification: M41, G2, G34

Suggested Citation

Ramalingegowda, Santhosh and Yu, Yong, Institutional Ownership and Conservatism (June 27, 2011). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1873488

Santhosh Ramalingegowda

University of Georgia - Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States
706-542-3612 (Phone)

Yong Yu (Contact Author)

University of Texas at Austin ( email )

1 University Station B6400
Austin, TX 78712
United States
(512)471-6714 (Phone)
(512)471-3904 (Fax)

Paper statistics

Downloads
929
Rank
19,616
Abstract Views
4,028