Relationship of Institutional Ownership with Firm Value and Earnings Quality: Evidence from Tehran Stock Exchange

Present research explores relationship of institutional ownership with firm valuation and earnings quality on Tehran Stock Exchange (TSE). Institutional investors are regarded as one of the effective governance mechanisms in financial markets. High power of this group of owners can serve as a checking factor against opportunistic behaviors and earnings manipulation on the part of managers and help increasing firm valuation. In the current study, from among the set of earning quality indicators, earnings persistence and earnings predictability were chosen the relationship of which with institutional ownership for a sample of 50 listed companies on TSE during 2009 through to 2011 was tested. Research results indicate a significantly positive association between institutional ownership and earnings quality (earnings persistence and predictability). However, between institutional ownership and firm value no significant relationship is found.