TY - JOUR
T1 - Overlapping institutional ownership along the supply chain and earnings management of supplier firms
AU - Gao, Lei
AU - Han, Jianlei
AU - Kim, Jeong-Bon
AU - Pan, Zheyao
PY - 2024/2
Y1 - 2024/2
N2 - We explore the impact of overlapping institutional ownership (OIO) within supply chains on the earnings management practices of supplier firms. Utilizing a dataset of U.S. publicly traded supplier firms from 1988 to 2016, we discover that suppliers with institutional ownership overlapping with their major customers exhibit reduced levels of discretionary accruals. This finding implies that such overlap discourages suppliers from engaging in upward earnings management through the manipulation of discretionary accruals. We also find that OIO curtails accrual-based earnings management by enhancing the relationship between supply chain partners and bolstering external monitoring. Additionally, we find that OIO also mitigates the extent of real earnings management undertaken by the supplier firm. These findings remain robust after addressing potential endogeneity concerns. Our results underscore the significant role of OIO within supply chains in curbing both accrual-based and real earnings management by supplier firms. © 2023 Elsevier B.V.
AB - We explore the impact of overlapping institutional ownership (OIO) within supply chains on the earnings management practices of supplier firms. Utilizing a dataset of U.S. publicly traded supplier firms from 1988 to 2016, we discover that suppliers with institutional ownership overlapping with their major customers exhibit reduced levels of discretionary accruals. This finding implies that such overlap discourages suppliers from engaging in upward earnings management through the manipulation of discretionary accruals. We also find that OIO curtails accrual-based earnings management by enhancing the relationship between supply chain partners and bolstering external monitoring. Additionally, we find that OIO also mitigates the extent of real earnings management undertaken by the supplier firm. These findings remain robust after addressing potential endogeneity concerns. Our results underscore the significant role of OIO within supply chains in curbing both accrual-based and real earnings management by supplier firms. © 2023 Elsevier B.V.
KW - Earnings management
KW - Institutional investors
KW - Overlapping institutional ownership
KW - Supply chain
UR - http://www.scopus.com/inward/record.url?scp=85178161354&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85178161354&origin=recordpage
U2 - 10.1016/j.jcorpfin.2023.102520
DO - 10.1016/j.jcorpfin.2023.102520
M3 - RGC 21 - Publication in refereed journal
SN - 0929-1199
VL - 84
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 102520
ER -