Institutional Investor Distraction and Earnings Management

41 Pages Posted: 24 Aug 2017 Last revised: 14 Sep 2019

See all articles by Alexandre Garel

Alexandre Garel

Audencia Business School; Labex ReFi

Jose M. Martin-Flores


Arthur Petit-Romec

SKEMA Business School; Université Côte d'Azur

Ayesha Scott

Auckland University of Technology

Date Written: September 10, 2019


In this study, we explore the implications of institutional investor distraction for earnings management. Our identification approach relies on a firm-level measure of institutional investor distraction that exploits exogenous attention-grabbing shocks to unrelated parts of institutional investors’ portfolios. We find that firms with distracted institutional shareholders engage more in both accrual-based and real earnings management. Further analyses show that the association between investor distraction and earnings management is stronger in firms with low analyst coverage and weak board monitoring, as well as in firms where managing earnings upward allows to meet or just beat the earnings target. Collectively, our results suggest that managers exploit the loosening in monitoring intensity resulting from investor distraction by engaging in earnings management. Even in the presence of institutional investors with superior monitoring abilities, limited attention may induce an insufficient monitoring of earnings management practices.

Keywords: Institutional Investors, Distraction, Monitoring Intensity, Earnings Management

Suggested Citation

Garel, Alexandre and Martin-Flores, Jose-Maria and Petit-Romec, Arthur and Scott, Ayesha, Institutional Investor Distraction and Earnings Management (September 10, 2019). Available at SSRN: or

Alexandre Garel (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312

Labex ReFi ( email )

79 avenue de la République
Paris, 75011

Jose-Maria Martin-Flores

CUNEF ( email )

Calle de Leonardo Prieto Castro, 2
Madrid, Madrid 28040

Arthur Petit-Romec

SKEMA Business School ( email )

Sophia Antipolis

Université Côte d'Azur ( email )


Ayesha Scott

Auckland University of Technology ( email )

Auckland, 1142
New Zealand

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