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

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

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

  • Publication Type: Article / Article
  • Volume: 25 Issue: 12
  • Publication Date: 2019
  • Doi Number: 10.1080/1351847x.2018.1561481
  • Journal Name: EUROPEAN JOURNAL OF FINANCE
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.1099-1121
  • Keywords: Foreign institutional investors, conservative reporting, information asymmetry, emerging market, CORPORATE GOVERNANCE, ACCOUNTING CONSERVATISM, AGENCY COSTS, CONDITIONAL CONSERVATISM, EQUITY OWNERSHIP, FIRM, PREFERENCES, BEHAVIOR, PERFORMANCE, DIRECTORS
  • Hacettepe University Affiliated: Yes

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.