Abstract
We investigate whether a firm's accruals quality is affected by its transient and dedicated institutional ownership. Measured as the absolute value of accrual estimation errors, accruals quality is found to be negatively associated with transient institutional ownership and positively associated with dedicated institutional ownership. Causality tests further suggest that transient institutional investors indeed provide managers with incentives to exacerbate accruals quality and that dedicated institutional investors effectively monitor managers in terms of accruals quality. In addition, we find similar results when we measure accruals quality by the standard deviation of accrual estimation errors.
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