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Institutional Ownership and Conservatism

Santhosh Ramalingegowda

University of Georgia - Terry College of Business

Yong Yu

University of Texas at Austin

June 27, 2011

Journal of Accounting & Economics (JAE), Forthcoming

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.

Number of Pages in PDF File: 47

Keywords: Accounting Conservatism, Institutional Investors, Monitoring Incentives

JEL Classification: M41, G2, G34

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Date posted: June 28, 2011 ; Last revised: June 29, 2011

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

Contact Information

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)

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