Measuring The Impact Of Institutional Ownership On Earnings Management

There’s an ongoing academic debate on the impact that institutional investors have on listed companies. On one hand, the indirect pressure of having lots of large investors scouring earnings reports could drive earnings management; on the other hand, institutions tend to be better informed than individuals (having better resources and access to more sophisticated financial data) and their judgment should be less susceptible to earnings management. There’s nothing inherently underhanded in all this. “Within certain restrictions, company management has the flexibility to manage accruals through account receivables and payables, inventory, deferred revenue, and prepaid expenses etc. Managing accruals can shift…