Individual Large Shareholders, Earnings Management, and Capital Market Consequences
Journal of Business Finance & Accounting, Forthcoming
46 Pages Posted: 24 Jun 2013 Last revised: 31 Jul 2016
Date Written: February 23, 2016
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: Suggested Citation