Earnings management and institutional investors: behavioral insights into stress-driven decision-making

Chunjuan Deng and Junainah Jaidi and Debbra Toria Anak Nipo (2024) Earnings management and institutional investors: behavioral insights into stress-driven decision-making.

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Abstract

The development of capital markets is influenced by the quality of accounting information, and the separation of ownership and control leads to a misalignment of interests between management and shareholders. Considering self-serving motives, management often has a need for earnings management. This study investigates the impact of institutional investor heterogeneity on earnings management, with a particular focus on the behavioral differences between stress-resistant and stress-sensitive institutional investors. Through empirical analysis of the roles of different types of institutional investors in real earnings management, we find that stress-resistant institutional investors exhibit strong resistance to earnings management, significantly curbing such practices within companies. In contrast, stress sensitive institutional investors are more susceptible to short-term performance pressures and tend to support earnings management strategies to maintain short-term performance. Therefore, the characteristics of institutional investors play a crucial role in shaping a firm's earnings management strategies. These findings provide new insights into the behavior of different types of institutional investors and offer valuable implications for companies when formulating their earnings management strategies.

Item Type:	Proceedings
Keyword:	Earnings Management, Institutional Investors, Heterogeneity, Stress-sensitive Institutional Investors, Stress-resistant Institutional Investors
Subjects:	H Social Sciences > HB Economic theory. Demography > HB1-3840 Economic theory. Demography H Social Sciences > HG Finance > HG1-9999 Finance > HG4501-6051 Investment, capital formation, speculation
Department:	FACULTY > Faculty of Business, Economics and Accounting
Depositing User:	SITI AZIZAH BINTI IDRIS -
Date Deposited:	24 Mar 2025 12:37
Last Modified:	24 Mar 2025 12:37
URI:	https://eprints.ums.edu.my/id/eprint/43286

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