Economics and Finance Faculty Publications and Presentations
Document Type
Article
Publication Date
10-2016
Abstract
This paper studies the drivers behind the monitoring effectiveness of institutional investors in curbing earnings management in an international setting. We identify three distinct drivers and propose two competing hypotheses: the hometown advantage hypothesis predicts that because of proximity to monitoring information, domestic institutions have a comparative advantage over foreign institutions in deterring earnings management, whereas the global investor hypothesis predicts that foreign institutions have a comparative advantage because of their proclivity toward activism and ability to deploy superior monitoring technologies. Consistent with the hometown advantage hypothesis, in aggregate, domestic, but not foreign, institutional ownership is associated with less earnings management; the monitoring effectiveness of foreign institutions improves as they gain proximity to monitoring information. Consistent with the global investor hypothesis, the monitoring effectiveness of foreign institutions improves in environments of greater agency conflicts or weaker governance controls or when the gap in monitoring technology between foreign and domestic institutions widens.
Recommended Citation
Kim, Incheol, Steve Miller, Hong Wan, and Bin Wang. “Drivers behind the Monitoring Effectiveness of Global Institutional Investors: Evidence from Earnings Management.” Journal of Corporate Finance 40 (October 1, 2016): 24–46. https://doi.org/10.1016/j.jcorpfin.2016.06.006.
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
First Page
24
Last Page
46
Publication Title
Journal of Corporate Finance
DOI
10.1016/j.jcorpfin.2016.06.006
Comments
Original published version available at https://doi.org/10.1016/j.jcorpfin.2016.06.006