Is future shareholder activism associated with current financial reporting quality? Evidence from the US

Abstract

We examine whether future shareholder activism is associated with current financial reporting quality. Activism refers to actions taken by shareholders to change firm policies and practices. If issues are present in an investee’s financial reports, we expect shareholders to act to improve information quality and governance. Following prior literature, we adopt governance proposals as our measure of activism and a portfolio of measures as our proxies for financial reporting quality. Depending on specification, we find governance proposals are positively associated with abnormal audit fees, abnormal accruals, the use of a non-Big N auditor, internal control issues, and restatements.

Keywords: Shareholder Activism, Shareholder Proposals, Financial Reporting Quality

JEL Classification: G30, M41