Quasi-Indexer Ownership and Conditional Conservatism: Evidence from Russell Index Reconstitutions *

60 Pages Posted: 4 Jun 2024

See all articles by Stephen A. Hillegeist

Stephen A. Hillegeist

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy

Fernando Penalva

IESE Business School - University of Navarra; European Corporate Governance Institute (ECGI)

Liwei Weng

Northeastern University - Accounting Group

Date Written: April 30, 2018

Abstract

While quasi-indexer institutional investors have been traditionally viewed as passive owners, recent literature finds they play an important governance role as external monitors. We test the causal effect of quasi-indexer ownership on conditional conservatism using the plausibly exogenous discontinuity in quasi-indexer ownership around the Russell 1000/2000 index cutoff. Using both regression discontinuity and instrumental variable research designs, we find higher ownership by quasi-indexers results in higher levels of conditional conservatism. Our results are robust to various model specifications and using an index switching analysis. We also find the effect of quasi-indexer ownership on conservatism is stronger when the expected benefits (costs) of conservatism are greater (lower) and in the presence of activist shareholders. Our evidence provides new insights into the role of quasi-indexers as external monitors and how they affect firms' financial reporting quality.

Keywords: JEL Classification: G23, G34, D82 quasi-indexer institutional owners, conditional conservatism, active monitors, causal effect, regression discontinuity

Suggested Citation

Hillegeist, Stephen A. and Penalva, Fernando and Weng, Liwei, Quasi-Indexer Ownership and Conditional Conservatism: Evidence from Russell Index Reconstitutions * (April 30, 2018). IESE Business School Working Paper No. 4850570, Available at SSRN: https://ssrn.com/abstract=4850570 or http://dx.doi.org/10.2139/ssrn.4850570

Stephen A. Hillegeist (Contact Author)

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy ( email )

Tempe, AZ 85287-3706
United States
480-965-6614 (Phone)

Fernando Penalva

IESE Business School - University of Navarra ( email )

Ave. Pearson 21
Barcelona, Barcelona 08034
Spain
932534200 (Phone)
932534343 (Fax)

HOME PAGE: http://www.iese.edu

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Liwei Weng

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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