Individual Large Shareholders, Earnings Management, and Capital‐Market Consequences. (July 2016)

• Record Type: Journal Article
• Authors: Dou, Yiwei; Hope, Ole‐Kristian; Thomas, Wayne B.; Zou, Youli
• Is Part Of: Journal of business finance & accounting. Volume 43:Number 7/8(2016)
• Page Start: 872
• Page End: 902
• Publication Date: 2016-07
• Subjects: blockholders -- large shareholders -- earnings management -- fixed effects -- market reactions; Finance -- Periodicals; Accounting -- Periodicals; Business -- Periodicals; 658.15
• DOI: 10.1111/jbfa.12204
• Languages: English
• ISSNs: 0306-686X

Abstract

Abstract: Using a large hand‐collected sample of all blockholders (ownership ≥ 5%) of S&P 1500 firms for the years 2002–2009, we first document significant individual blockholder effects on earnings management (accrual‐based earnings management, real earnings management, and restatements). This association is driven primarily by these large shareholders influencing rather than selecting firms' financial reporting practices. Second, the market's reaction to earnings announcements suggests that investors recognize the heterogeneity in blockholders' influence on earnings management. The results highlight the highly individualized effects of blockholders and a mechanism through which shareholders impact reported earnings.