The Role of Foreign Institutional Investors in Restraining Earnings Management Activities across Countries

49 Pages Posted: 24 Feb 2013 Last revised: 12 Dec 2018

See all articles by Ugur Lel

Ugur Lel

University of Georgia - Department of Banking and Finance

Date Written: December 21, 2016

Abstract

This study investigates the role of foreign institutional investors (FIIs) in restraining earnings management activities of firms under varying levels of investor protection. Firms manage their earnings less when independent FIIs are among their shareholders, especially when monitoring is more valuable – in presence of weak investor protection rights and greater growth opportunities. These effects are robust to a quasi-exogenous shock to FIIs’ shareholdings, unobserved firm heterogeneity, and alternative earning management measures. FIIs are associated with an increase in foreign director presence on corporate boards and audit committees.

Keywords: corporate governance, earnings management, foreign and domestic institutional investors, investor protection, management incentives, monitoring

JEL Classification: G23, G34, M41

Suggested Citation

Lel, Ugur, The Role of Foreign Institutional Investors in Restraining Earnings Management Activities across Countries (December 21, 2016). Available at SSRN: https://ssrn.com/abstract=2223651 or http://dx.doi.org/10.2139/ssrn.2223651

Ugur Lel (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

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