Abstract
Using a sample of listed firms in China from 2008 to 2011, we investigate the relation between institutional ownership and firm accounting conservatism. We find that higher level of equity ownership by institutional investors is associated with less conservative financial reporting. We also document that firms with long-horizon institutions engage in less conservative financial reporting. We further test the effects of interaction terms between institutional holdings and investor investment horizons, and our results reveals that with higher level of institutional holdings and more long-term institutional investors, firms are more likely to engage in less conservative reporting policy. Our evidence is contrary to the findings based on US firms, but in line with the price manipulation motive by institutional investors due to short-sales constraints in China.
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