Abstract
ABSTRACT Whether foreign investors can play a prominent monitoring role as shareholders in emerging markets is a controversial issue. This study investigates the effect of foreign ownership on corporate real activities manipulation in China. We find that, even after correcting for the potential endogeneity issues, foreign investors help to decrease corporate real earnings management, and this effect is explained by the disciplinary and monitoring roles of foreign investors. We also find that foreign institutional investors have greater influence on real earnings management than domestic institutional investors do. Further evidence shows that foreign ownership affects firm value via real earnings management.
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