Individual Large Shareholders, Earnings Management, and Capital Market Consequences

Journal of Business Finance & Accounting, Forthcoming

Rotman School of Management Working Paper No. 2283839

46 Pages Posted: 24 Jun 2013 Last revised: 31 Jul 2016

Yiwei Dou

New York University (NYU) - Department of Accounting

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Wayne B. Thomas

University of Oklahoma - Michael F. Price College of Business

Youli Zou

George Washington University - Department of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: February 23, 2016

Abstract

Using a large hand-collected sample of all blockholders (ownership ≥ 5%) of S&P 1500 firms for the years 2002–2009, we first document significant individual blockholder effects on earnings management (accrual-based earnings management, real earnings management, and restatements). This association is driven primarily by these large shareholders influencing rather than selecting firms’ financial reporting practices. Second, the market’s reaction to earnings announcement suggests that investors recognize the heterogeneity in blockholders’ influence on earnings management. The results highlight the highly individualized effects of blockholders and a mechanism through which shareholders impact reported earnings.

Keywords: Large shareholders, blockholders, earnings management, fixed effects, market reaction

JEL Classification: G1, G2, G31, G32, M1, M41, N20

Suggested Citation

Dou, Yiwei and Hope, Ole-Kristian and Thomas, Wayne B. and Zou, Youli, Individual Large Shareholders, Earnings Management, and Capital Market Consequences (February 23, 2016). Journal of Business Finance & Accounting, Forthcoming; Rotman School of Management Working Paper No. 2283839. Available at SSRN: https://ssrn.com/abstract=2283839 or http://dx.doi.org/10.2139/ssrn.2283839

Yiwei Dou

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Wayne B. Thomas

University of Oklahoma - Michael F. Price College of Business ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

Youli Zou

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States

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