Two Tales of Monitoring: Effects of Institutional Cross-Blockholding on Accruals

47 Pages Posted: 3 Apr 2018 Last revised: 18 Feb 2020

See all articles by Jie He

Jie He

University of Georgia - Department of Finance

Lei Li

Federal Reserve Board

P. Eric Yeung

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: February 15, 2020

Abstract

Over 70% of publicly traded U.S. firms are interconnected through institutional investors’ cross-blockholding. We study the implications of such emerging ownership patterns for financial reporting, and document a robust, negative association between accruals and institutional cross-blockholding. We demonstrate causal inference using financial institution mergers as exogenous shocks to cross-blockholding. Results from additional analyses support both the product market monitoring and the financial reporting monitoring hypotheses. Finally, we show that the increase in institutional cross-blockholding strengthens the association between accruals and cash flows over the past 35 years.

Keywords: Institutional blockholders; Accruals; Cross-holding; Monitoring; Financial reporting quality

JEL Classification: M40, G2, G23, G34

Suggested Citation

He, Jie and Li, Lei and Yeung, P. Eric, Two Tales of Monitoring: Effects of Institutional Cross-Blockholding on Accruals (February 15, 2020). Available at SSRN: https://ssrn.com/abstract=3152044 or http://dx.doi.org/10.2139/ssrn.3152044

Jie He (Contact Author)

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Lei Li

Federal Reserve Board ( email )

1801 K Street NW
Washington, DC 20036
United States

P. Eric Yeung

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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