Author/Authors :
Ahmad, Azlina Universiti Kebangsaan Malaysia - Fakulti Ekonomi dan Pengurusan - Pusat Pengajian Perakaunan, Malaysia , Mohd Saleh, Norman Universiti Kebangsaan Malaysia - Fakulti Ekonomi dan Pengurusan - Pusat Pengajian Perakaunan, Malaysia , Mohd Iskandar, Takiah Universiti Kebangsaan Malaysia - Fakulti Ekonomi dan Pengurusan - Pusat Pengajian Perakaunan, Malaysia , Alias, Mohamad Adnan Universiti Kebangsaan Malaysia - Fakulti Ekonomi dan Pengurusan - Pusat Pengajian Perakaunan, Malaysia
Abstract :
Institutional investors are regarded as sophisticated investors who have the potential to monitor managers and help reduce firm’s agency cost. This study examines the monitoring role of institutional investors in an environment of high public funds presence and high government intervention. It focuses on the effects of institutional ownership on portfolio firms’ earnings management by examining the association between institutional ownership and earnings opacity. This study also provides evidence on the effect of public/non-public status of institutional investors on their monitoring effectiveness. Institutional presence is proxied by three measures: (1) percentage of institutional equity shareholdings; (2) concentration of institutional shareholdings; and (3) number of institutional investors. Propensity to manage earnings is measured by four attributes of earnings numbers that could lead to earnings opacity: (1) earnings aggressiveness; (2) earnings smoothness; (3) loss avoidance; and (4) earnings decreases avoidance, aggregated into firm level scores of earnings opacity. Data were obtained from Datastream and annual reports of samples firms listed on the Main Board and Second Board of Bursa Malaysia from 1996 to 2005. Association between institutional ownership and earnings opacity is tested via multiple regression analysis controlling for management shareholdings, firm size, firm’s leverage level and audit quality. Results show that non-public institutional investors with concentrated shareholdings provide more effective monitoring in comparison to public institutional investors.
