The Role of Foreign Shareholders in Disciplining Financial Reporting
Forthcoming, Journal of Business Finance and Accounting
62 Pages Posted: 10 Feb 2017
Date Written: February 9, 2017
We investigate the role of foreign shareholders in improving the quality of accounting information provided by firms domiciled in countries with low de facto institutional quality. Using a sample of firms from four South-European countries (Greece, Italy, Portugal and Spain) for which we observe detailed ownership evolutions over the period 2002-2007, we find that increases in foreign ownership lead to increases in financial reporting quality but only if the foreign shareholders are domiciled in countries with strong investor protection mechanisms. Further, we find that the improvement in financial reporting quality is more pronounced in the case of foreign institutional investors. Finally, our results hold before and after the introduction of the International Financial Reporting Standards (IFRS) in 2005.
Keywords: earnings quality; foreign investors; institutional investors; ownership structure
JEL Classification: G30, M40
Suggested Citation: Suggested Citation