Reverse factoring: accounting practices in a regulatory vacuum

Aim/purpose – This study reports the demand for Big 4 audits among institutional and family owners, the two dominant ownerships in the GCC countries. We conducted this in-depth study to gain an understanding of the type of firms, family-owned or institu- tional-owned firms that lead to choosing audit firms. Design/methodology/approach – This study employed a quantitative cross-country study by selecting a sample based on secondary data extracted from the Capital IQ data- -set from a panel of 1827 non-financial firms listed on the stock exchanges of the Gulf Cooperation Council (GCC) countries from 2010 to 2018. The hypothesized effects of institutional ownership (IO) and family ownership (FO) on the selection of external auditors in these countries were examined using logit, probit, and heteroskedastic probit analysis. Findings – The study finds that institutional investors play a crucial role in influencing firms’ choice of auditors in the GCC. Family-owned firms tend to hire non-Big 4 firms when the owners actively monitor the firms’ financial transactions. In addition, the study finds that both domestic and foreign institutional investors have a significant positive effect on auditor selection, with domestic institutional investors having priority. These findings support the efforts of market authorities in the GCC to highlight the critical role of IO over FO in improving audit quality. Research implications/limitations – The results are highly relevant for shareholders, executives, institutional investors, regulators, and academics. They help them improve the growth of capital and audit markets by developing best practices, thereby helping achieve an optimal framework for auditor choice that matches higher audit quality. This study focuses on only two types of ownership structures (institution and family) despite the many options because of the extensive debates and discussions on the association between the studied ownership types and auditor choice. Originality/value/contribution – Study highlighted the role of institutional investors in GCC countries as one of the most attractive emerging economies in the Middle East. Since no research has been conducted on the role of institutional and family investors in selecting external auditors in GCC countries, this study has made a significant contribu- tion to the accounting and auditing literature. It mitigates the gap in the literature on emerging markets. The findings can provide policymakers with guidelines for including institutional investors and FO in GCC countries to ensure high-quality audits. Keywords: institutional ownership (IO), family ownership (FO), auditor choice, Gulf Cooperation Council, emerging economies. JEL Classification: G23, G32, D10, M42.

The main aim of this article is to examine the relation between institutional ownership and stock liquidity. Using a large sample of Indian firm data for the period 2001–2012, we estimate two liquidity measures, Amihud illiquidity and HL-spread. We find that institutional ownership is negatively related to the stock liquidity. We also find that the negative institutional ownership–stock liquidity relation is mostly driven by foreign institutional investors (FIIs) and Bank ownership. Conversely, retail ownership is positively related to the stock liquidity. Importantly, we find that institutional investors are more likely to hold liquid stocks. These findings are consistent with the hypothesis that the level of institutional ownership proxies for informed investors, while they trade liquid stock to reduce price impact cost.

The main objective of this study is to examine how institutional investors and different types of them influence the firms' capital structure. Using a panel data including 240 the main market Iranian firms from 2012 to 2016, the results of this study show that there is a nonlinear relationship between institutional ownership and capital structure. First, we look for a quadratic relationship but we did not find any evidence to support it. Further, we test for a cubic association in the next stage. The results reveal a cubic relationship between institutional ownership and capital structure but this association is different for different types of institutional investors. Pressure-sensitive institutions have positive, negative and again positive influence; while inversely pressure-insensitive institutions have a negative, positive and again negative impact on debt ratio in different levels of their ownership.

ournal of Accounting Advances (J.A.A) Vol. 2, No. 1, Summer 2010, Ser. 58/3 Extended Abstract Dr. S. Mehrani Dr. G. R. Karami M. Moradi H. Eskandar University of Tehran Introduction Institutional owners have influence on companies because of their substantial investments; and can affect on companies, policies (include accounting and financial reporting procedures). Financial statements are main core of financial reporting process. Financial statements (especially income statement) are attended by investors. This study is designed to provide insights into the monitoring role of institutional investors by examining whether institutional ownership affects the quality of reported earnings. There are two theories about institutional owners. Under active monitoring theory these owners have more incentives to become active monitors. Because of high costs, only large investors would have the incentive to engage in active monitoring. This class of thought believes that institutional investors have relative advantage in information collection and analysis compare with other small investors. Another theory is private benefits. It means that institutional investors may not actively monitor their investees’ management activities due to the presence of free riders and lack of their own sufficient experience; rather they may compromise with the investee managers. Therefore, institutional owners might not engage to encourage managers to report high quality earnings. This thought implies a negative relationship between institutional ownership and earnings quality. Research Hypotheses To assess the purpose of this study, two research hypotheses are chosen. These hypotheses are as follow: 1. There are a significant relationship between institutional ownership and earnings quality. 2. There are a significant relationship between concentrated institutional ownership and earnings quality. Research Method On the basis of purpose and method this study is practical and descriptive research. In this study, we develop a multidimensional method of measuring earnings quality. That is for measuring the earnings quality, four regression models that measure the difference aspects of earnings quality (such as informative content of earnings, predictive value of earnings, accrual components of earnings, and timeliness of earnings) fits for this purpose. The sample for this study is comprised of 51 firms listed in Tehran Stock Exchange (TSE) during 9 years. Results In this study, two theories (active monitoring theory and private benefits theory) about institutional ownership examined. Collectively, the results provide conflict evidences about the effect of institutional ownership on earnings quality. Based on these results, institutional ownership and concentrated institutional ownership are not significantly correlated with informative content of earnings and accrual components of earnings. Institutional ownership has negative effect on predictive value of earnings and so, negatively correlated with earnings quality. Therefore, private benefits theory is approved. But concentrated institutional ownership has positive effect on predictive value of earnings. Institutional ownership is positively correlated with reporting lag and so, negatively correlated with earnings quality. However, concentrated institutional ownership is not significantly correlated with reporting lag. Discussion and Conclusion The results show conflicting relationships between institutional investors and earnings quality. Therefore, these owners have different effects on various dimensions of earnings quality.

ABSTRACTInstitutional ownership is an important factor in corporate governance. Institutional investors play important roles in firms because of their substantial shareholdings and their capability to monitor managers. However, the question is whether they are capable of monitoring the managers. The literature has provided different evidence for the monitoring role of institutional investors. This study attempts to provide insights into the monitoring roles of institutional investors by examining the relationship between institutional ownership and earnings quality on the Tehran Stock Exchange. Institutional investors are classified into two groups, namely active institutional investors and passive institutional investors, based on their monitoring power in Iran. A multidimensional method is used to measure the various aspects of earnings quality, such as earnings response coefficient, predictive value of earnings, discretionary accruals, conservatism, and real earnings management. The results show that institutional ownership has a positive effect on earnings quality. Similar to total institutional ownership, active institutional ownership has positive effects on proxies of earnings quality. Nonetheless, passive institutional ownership does not have any power to affect earnings quality. Moreover, lead-lag tests of the direction of causality suggest that institutional ownership leads to more earnings quality and not the reverse.

Characteristics and performance of institutional and foreign investors in Japanese and Korean stock markets

Several recent papers show that dissident institutions have more influence with management when the level of institutional ownership in the target firm is high. This paper investigates whether increased institutional ownership and institutional ownership concentration reduce agency costs and thus increase corporate value. We find that corporate value is positively related to institutional ownership but negatively related to institutional ownership concentration. This implies that the linkage between corporate value and institutional ownership is driven by momentum trading and supports the view that the bulk of institutional investors remain passive in regards to monitoring. Whether the relaxation of restrictions on institutional communication and ownership (by individual institutions) would facilitate more efficient managerial oversight remains a debatable point. © 1997 John Wiley & Sons, Ltd.

PurposeThe purpose of this paper is to examine the impact of conversion to REIT status by former listed property companies in the United Kingdom on the level of institutional ownership during the period of 2007–2016.Design/methodology/approachThis paper uses an event study framework to track the change in institutional ownership three years before and after a REIT conversion event. This event study approach circumvents the sample selection bias issue associated with the conversion event wherein the decision to convert to REIT is likely to be endogenous.FindingsPanel regression analysis reveals that changing to REIT status led to a 12.8 and 15.2% increase in institutional ownership and number of institutional investors, respectively. The first order of priority in institutional investors' investment in REIT shares is their preference for liquidity. Further analysis shows that institutional investors changed their preferences towards characteristics associated with systematic risk, firm age and liquidity after the conversion event by becoming less averse to firm-specific risk, placing more emphasis on firm age and less emphasis on systematic risk and liquidity.Practical implicationsOverall, conversion to REIT status helps increase former property companies' investor base, which is in line with the regulator's aim to open up the property market to a wide range of investors through the introduction of a REIT regime. Findings from this paper also have policy implications for countries that are considering a REIT regime for their capital market and existing REIT regimes without a formal conversion mechanism.Originality/valueThis paper offers, for the first time, evidence on 1) how conversion to REITs influences firms' institutional ownership and 2) the determinants of converted REITs' institutional ownership.

This study uses the annual data of Chinese A-share listed companies held by institutional investors during the period of 2005–2016 for empirical analysis. First, this study uses the panel regression model to explore the relationship between institutional ownership and stock return volatility. Then, the CAPM one-factor model and the Fama–French three-factor model are used to analyze the relationship between institutional ownership and idiosyncratic risks. Finally, we estimate the relationship between institutional ownership and corporate governance. Furthermore, we compare the empirical results before, during, and after the crisis. This study uses the Hausman test and the endogenous test to validate the results. The empirical results show that the management behavior of independent institutional investors is more obvious post-crisis. However, gray institutional investors have no impact on idiosyncratic risks. In the regression of the CAPM one-factor model, domestic institutional investors have effectively reduced the idiosyncratic risks before the financial crisis. Foreign institutions’ monitoring performance before, during, and after the crisis is not obvious. All institutional ownership has a significant positive impact on the top 10 shareholders, but independent and domestic institutional ownership has a significant negative impact on senior shareholders. Institutional ownership has little impact on the movement of the first shareholder and CEO.

We examine the relationship between institutional ownership and Real Estate Investment Trust (REIT) acquisitions. We find that REITs with relatively higher levels of pre-event institutional ownership are more likely to partake in acquisitions. We additionally find that levels of institutional ownership significantly increase post-acquisitions even after controlling for other relevant factors. This increase is driven by longer-term and passive institutional investors. Further, we find positive influences from the increase in institutional ownership on both market and accounting performance, however, this is driven by increases in short-term and active institutional investor levels. Collectively, our results suggest a significant influence by institutional investment on REIT acquisition decisions that has a significant effect on shareholder wealth.

Institutional investors have become tremendously important in U.S. capital markets in recent years. But a study of 557 U.S. manufacturing firms (1985-90) shows the role of such investors to be mixed. Results show the following: 1) institutional ownership has a positive effect on capital spending but apparently a negative effect on research and development spending and no effect on advertising expenditures. So, institutional ownership might contribute to a firm's underinvestment in intangible assets and hence exacerbate managerial myopia; 2) institutional investors are complex institutions, so the regulatory and investment environment in which they operate must be carefully designed. The institutionalization of the stock market happened gradually in the U.S. and some other industrial countries and may happen gradually in developing countries as their financial markets are reformed and deepened; 3) there is a fundamental conflict between liquidity and control as objectives on institutional investment. In the U.S., liquidity has been the dominant objective andexitrather thanvoicehas been the preferred option of institutional investors on corporate governance issues. But recentlyvoicehas begun to be a more important objective; 4) institutional investors'monitoring and disciplinary activities may (through corporate governance) substitute for the disciplinary and signaling roles of debt. But there is no definite evidence that institutional ownership by itself improves firm performance. Still, activism by institutional investors has replaced takeovers as the central mechanism of corporate government in the U.S. in the 1990s. The implication for developing countries: encourage institutional ownership of equity, and promote activism among institutional investors. The U.S. experience cannot always be generalized to other countries, but it does demonstrate that such activism can be a viable alternative to takeovers as a vehicle for corporate governance. It is also important for curbing the excesses of managerial discretion and maximizing shareholder values.

We examined the sophisticated institutional investors’ preference for sustainable investing. Precisely, we examine the link between financial reporting quality and investment behaviour of institutional investors in the context of relatively high level of information asymmetry. The results suggest that sophisticated (i.e. institutional) investors tend to shy away from firms with poor quality of information in financial statements. Our analysis also suggest that an aggregate institutional ownership reduces by 1.2% for every unit decrease in financial reporting quality, and foreign institutional ownership decreases by 1%. Foreign ownership in firms with influential block holders decreases by 3% for every unit decrease in financial reporting quality. Overall, we find that institutional investors avoid relying on trading strategies that enhance returns based on information discovery in markets with high information acquisition costs and liquidity constraints, such as emerging markets.

The trading behaviour of institutional investors has attracted much attention. However, many issues related to their trading behaviour cannot be addressed without high‐frequency changes in institutional ownership. Based on a measure of the trading behaviour of institutional investors by using an institutional account dataset from China, we find that (i) active institutions trade speculatively by taking advantage of individual investors; (ii) individuals buying high and selling low offer liquidity only on average; (iii) foreign investors do not show significant patterns in speculation; and (iv) trading of active institutions significantly affects price. This study casts doubt on the conventional wisdom that institutional or sophisticated investors improve market efficiency by correcting mispricing, and provides direct evidence for institutional investors' speculation behaviour and their destabilising effect on the stock market. Results suggest that regulators in emerging markets should monitor institutions' speculation to bring fairness and justice to the stock market.

PurposeThis study aims to investigate the influence of institutional investors on corporate social responsibility (CSR) spending among Indian firms, focusing particularly on distinctions between domestic and foreign institutional ownership. It examines how institutional ownership shapes CSR spending in different contexts of firm profitability and size and during external shocks such as the COVID-19 pandemic, thus contributing to understanding investor activism’s role in emerging markets under mandatory CSR regulatory frameworks.Design/methodology/approachThe study analyzes data from 2,171 Indian firms over 2014–2023, comprising 11,134 firm-year observations. It applies a two-stage least squares (2SLS) regression model to address potential endogeneity between institutional ownership and CSR spending effectively. Additional robustness analyses evaluate the consistency of findings across contexts, including profitability, firm size and the impact of the COVID-19 pandemic, ensuring a holistic understanding of the institutional ownership–CSR relationship.FindingsResults indicate a significant positive impact of institutional ownership on CSR spending, with domestic institutional investors exhibiting stronger influence than foreign investors. Institutional influence is more pronounced in smaller, loss-making firms and intensified during the COVID-19 pandemic. These findings suggest institutional investors use CSR strategically to enhance firm legitimacy and stability, especially under economic distress or uncertainty, highlighting their critical role in driving sustainable governance practices in the Indian context.Research limitations/implicationsThis study focuses solely on listed Indian firms subjected to CSR mandates, limiting generalizability beyond regulated CSR environments. Further, the analysis mainly captures financial and institutional dimensions. Future research could incorporate qualitative analyses or comparative cross-country studies to deepen understanding of institutional investors’ motivations and strategies behind CSR engagement.Practical implicationsThe findings underscore the importance of fostering institutional investor engagement, especially domestic institutions, to promote sustainable and accountable CSR practices. Policymakers are recommended to create targeted regulatory frameworks incentivizing institutional investments in CSR, particularly in financially vulnerable or smaller firms. Firms can strategically leverage CSR initiatives to strengthen legitimacy and governance during crises. Educational initiatives highlighting CSR’s long-term benefits could also encourage responsible institutional investment behavior.Originality/valueThe study uniquely addresses the gap concerning endogeneity in the relationship between institutional ownership and CSR through advanced econometric techniques (2SLS). It differentiates between domestic and foreign institutional investor impacts, particularly under crises like COVID-19. Examining moderating roles of profitability and firm size provides insights into investor-driven CSR. This enriches theoretical and empirical perspectives on institutional activism and corporate governance within mandatory CSR frameworks in emerging economies.

Purpose The ethical framework of social responsibility requires individuals and businesses to ensure sustainable consumption and production patterns. Corporations responsible for a significant proportion of global waste are compelled to better manage their waste. Given that institutional ownership is a key pillar of corporate governance, we aim to investigate its impact on waste production and recycling. Design/methodology/approach We collected an international dataset of firms listed in 42 countries between 2002 and 2019, comprising 17,272 firm-year observations. We applied panel data regression techniques to investigate the impact of institutional ownership on corporate waste management while accounting for time, industry and country-fixed effects and endogeneity issues due to reverse causality (2SLS and GMM) and selection bias (PSM). Findings Our findings reveal that institutional ownership leads to reduced waste production and increased recycling. Particularly, when institutional ownership increases by one standard deviation, waste generation (recycling) decreases (rises) by 1.008 tons (0.64%). These findings are robust to alternative proxies, various econometric techniques and robustness analyses. Our cross-sectional analyses show that when institutional investors are present, there is better waste management in firms with low governance quality, low environmental orientation, firms operating in developed (i.e. G10) countries and firms having waste governance mechanisms. Taken together, our results demonstrate the socially responsible and ethical role of institutional investors toward environmental issues. Research limitations/implications The data, sourced from ASSET4 and WorldScope, primarily covers large firms, which may restrict the generalizability of our findings to small and medium-sized enterprises. Variations in governance structures and regulatory environments across countries may also influence corporate waste management practices, requiring cautious interpretation of the results in different national contexts. Additionally, due to data constraints, we were unable to distinguish between controllable and uncontrollable waste. Practical implications Our results suggest that institutional investors help reduce corporate waste and enhance recycling; therefore, the policymakers of global institutions may include institutional investors in their strategies to tackle waste and ensure sustainable production. Originality/value To the best of the authors’ knowledge, this is the first study that investigates the impact of institutional ownership on corporate waste management using an international dataset. Aligned with agency theory, our findings indicate that institutional ownership enhances corporate governance efficiency by facilitating extra monitoring and decreasing information asymmetry. Consequently, enhanced corporate governance mechanisms play a key role in better waste management.