The Effects of Institutional Ownership and Monitoring: Evidence from Financial Restatements

32 Pages Posted: 7 Feb 2006  

Natasha Burns

University of Texas at San Antonio - Department of Finance

Simi Kedia

Rutgers Business School

Marc L. Lipson

University of Virginia - Darden School of Business

Date Written: January 2006

Abstract

We find a positive relation between ownership by institutions with active strategies and short investment horizons (transient institutions) and the occurrence and magnitude of financial restatements. Even ownership by institutions with enhanced incentives to monitor does not attenuate restatement activity. Looking at discretionary accruals, which are more easily monitored than practices that might result in a restatement, we again find an increased usage associated with transient institutions though, in this case, ownership by other institutions attenuates their usage. These results suggest that the presence of transient institutional investors creates strong incentives to manage earnings and that institutional monitoring does not mitigate these incentives.

JEL Classification: M41, M43, G34, G32, G23, G24

Suggested Citation

Burns, Natasha and Kedia, Simi and Lipson, Marc L., The Effects of Institutional Ownership and Monitoring: Evidence from Financial Restatements (January 2006). Available at SSRN: https://ssrn.com/abstract=880788 or http://dx.doi.org/10.2139/ssrn.880788

Natasha Burns (Contact Author)

University of Texas at San Antonio - Department of Finance ( email )

San Antonio, TX 78249
United States
210-458-6838 (Phone)

Simi Kedia

Rutgers Business School ( email )

117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)

Marc Lars Lipson

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

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