The relations between institutional equity ownership, price responsiveness, and accounting disclosure quality /
| Main Author: | |
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| Other Authors: | , , |
| Format: | Thesis Book |
| Language: | English |
| Published: |
1993.
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| Subjects: | |
| Online Access: | ProQuest, Abstract Link to OAKTrust copy |
| Abstract: | I investigate the relations between investor sophistication and institutional ownership, between sophistication and earnings responsiveness, and between sophistication and quality of accounting disclosures. Chapter II employs Hand's [Accounting Review: 1989, 1990] data on debt-for-equity swaps to test for institutional earnings fixation (a lack of sophistication). Given the regulatory restrictions against risk-taking applied to some institutional investments (e.g., prudent man laws), and the low level of accounting comprehension observed among financial professionals [Lee and Tweedie, 1980], there is incentive for institutions to rely too heavily on earnings, either as legal insurance, or because they invest too little in financial statement interpretation to enable them to distinguish a paper gain from true economic gain. Results do not support an earnings fixated response. Beaver, Lambert, and Morse [1980] split earnings into value-relevant and garbled portions. In Chapter III, I further divide these earnings components into value-relevance which is priced, and that which is not priced; garbling which is priced, and that which is not priced. Both value-relevance and garbling which are not priced --by definition-- reduce the covariation between market returns and accounting earnings. I hypothesize that institutions are more likely to perceive and understand value-relevance (proxied by persistence), and to discredit garbling (proxied by the inverse of the analysts' ranking of disclosure quality). Results indicate that the interaction between institutional ownership and persistence are positively related to earnings responsiveness, over and above market responsiveness to persistence alone. Results do not support a difference between institutional and individual response to garbling; both groups respond less to earnings as garbling increases. Chapter IV models sophisticated investor preference for higher quality accounting reports (measured both as earnings persistence and as anlysts' ranking) with the effect of sophisticated investor presence on disclosure quality, using a system of simultaneous equations that also control for firm size, risk, and industry characteristics. Results indicate that institutions do not select investments on the basis of disclosure quality, but that institutional presence increases the quality of disclosure. Evidence is consistent across both measures of disclosure quality. |
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| Item Description: | Vita. "Major subject: Accounting." |
| Physical Description: | vii, 113 leaves ; 28 cm |
| Bibliography: | Includes bibliographical references. |