Is conservative reporting attractive to foreign institutional investors? Evidence from an emerging market


YILDIZ Y., KARAN M. B. , Ozkan A.

EUROPEAN JOURNAL OF FINANCE, vol.25, no.12, pp.1099-1121, 2019 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 25 Issue: 12
  • Publication Date: 2019
  • Doi Number: 10.1080/1351847x.2018.1561481
  • Title of Journal : EUROPEAN JOURNAL OF FINANCE
  • Page Numbers: pp.1099-1121

Abstract

This study investigates the relation between conservative reporting and foreign institutional ownership using a unique dataset of firms in Turkey. In doing so, we distinguish between foreign funds and corporations. Contrary to prior findings, our analysis shows that conservative reporting is not necessarily a desirable accounting feature for foreign institutional investors. We also find that the interplay between conservative reporting and ownership is significantly different between foreign funds and corporations. The estimated negative relation holds only for foreign funds. Further analysis reveals that foreign funds do not find conservative reporting desirable in low-asymmetric information firms and reduce ownership with greater accounting conservatism in such firms. The analysis sheds significant lights on the relevance of conservative reporting in alleviating the negative consequences of asymmetric information.