Foreign institutional ownership and demand for accounting conservatism: evidence from an emerging market

Khalil, Mohamed; Ozkan, Aydin; Yildiz, Yilmaz

Abstract

© 2019, The Author(s). This study investigates how foreign institutional ownership interacts with accounting conservatism in an emerging market setting. We posit that weak investor protection and a high degree of information asymmetry between insiders and outside investors increase demand for conservative reporting in firms operating in emerging markets. Foreign investors in this setting have informational disadvantages relative to their domestic peers and have difficulties in getting access to data. Using a sample of Turkish firms, we find that foreign institutions (particularly foreign corporate investors) demand more conservative reporting in the investee firms. Moreover, we show that this association is more pronounced among firms with greater asymmetric information problems and growth opportunities. Our additional tests reveal that the direction of causality flows from foreign institutional ownership to conservatism, and not vice versa.

Citation

Khalil, M., Ozkan, A., & Yildiz, Y. (2020). Foreign institutional ownership and demand for accounting conservatism: evidence from an emerging market. Review of Quantitative Finance and Accounting, 55(1), 1-27. https://doi.org/10.1007/s11156-019-00834-3

• Journal Article Type: Article
• Acceptance Date: Jul 31, 2019
• Online Publication Date: Sep 10, 2019
• Publication Date: 2020-07
• Deposit Date: Sep 17, 2019
• Publicly Available Date: Sep 17, 2019
• Journal: Review of Quantitative Finance and Accounting
• Print ISSN: 0924-865X
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 55
• Issue: 1
• Pages: 1-27
• DOI: https://doi.org/10.1007/s11156-019-00834-3
• Keywords: Accounting conservatism; Foreign ownership; Institutional investors; Emerging market
• Public URL: https://hull-repository.worktribe.com/output/2640670
• Publisher URL: https://link.springer.com/article/10.1007%2Fs11156-019-00834-3
• Additional Information: First Online: 10 September 2019
• Contract Date: Sep 17, 2019