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Does Hometown Advantage Matter? The Case Of Institutional Blockholder Monitoring On Earnings Management In Korea

C. Liu, C. Chung, Hong Kee Sul, Kainan Wang
Published 2017 · Economics

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AbstractThis study uses a large sample of Korean firms to examine institutional blockholders’ influence on corporate earnings management. The Korean market is an interesting setting to study institutional monitoring because it is dominated by chaebols, which are characterized by ineffective internal governance mechanisms. We find evidence that institutional blockholders deter opportunistic financial reporting, and such activities are the most evident among domestic institutional blockholders. Foreign institutional blockholders, especially those with short-term investment objectives, lead to more discretionary reporting. Our findings are robust to various empirical models and endogeneity checks. Moreover, this study offers new insight into the proximity advantage of domestic institutional investors with regard to monitoring information. It also highlights institutional investors’ roles in shaping corporate governance in emerging markets, in which sound corporate governance has become increasingly important for firms’ long-term sustainability. One important policy implication is that regulatory authorities should aim to promote institutional investors’ participation in these markets. RésuméCette étude utilise un large échantillon de firmes coréennes pour étudier l’influence des actionnaires institutionnels dominants sur la gestion des résultats des sociétés. Le marché coréen constitue un contexte intéressant pour étudier le contrôle institutionnel parce qu’il est dominé par des chaebols qui sont caractérisés par des mécanismes de gouvernance interne inefficients. Nous constatons que les actionnaires institutionnels dominants détériorent le reporting financier opportuniste, et que ces activités sont plus visibles parmi les actionnaires institutionnels dominants domestiques. Les actionnaires institutionnels dominants étrangers, plus particulièrement ceux ayant des objectifs d’investissement à court terme, donnent lieu à un reporting plus discrétionnaire. Nos résultats sont robustes face à plusieurs modèles empiriques et à des vérifications d’endogénéité. Par ailleurs, cette étude offre un nouvel éclairage sur l’avantage de proximité des investisseurs institutionnels domestiques concernant le contrôle de l’information. Elle met aussi en relief les rôles des investisseurs institutionnels dans la structuration de la gouvernance d’entreprise dans les marchés émergents où une gouvernance d’entreprise solide est devenue plus importante pour la pérennité des firmes sur le long terme. Une implication politique importante est que les autorités de régulation devraient s’efforcer de promouvoir la participation des investisseurs institutionnels sur ces marchés.ResumenEste estudio usa una amplia muestra de empresas coreanas para examinar la influencia de los bloqueadores institucionales en la gestión de las ganancias corporativas. El mercado coreano es un escenario interesante para estudiar el monitoreo institucional porque está dominado por chaebols, los cuales están caracterizados por mecanismos ineficaces de gobernanza interna. Encontramos evidencias que los bloqueadores institucionales hacen disuadir los reportes financieros oportunistas, y estas actividades son las más evidentes entre los bloqueadores institucionales nacionales. Los bloqueadores institucionales extranjeros, especialmente aquellos con objetivos de inversión a corto plazo, conducen a reportes discrecionales. Nuestros hallazgos son robustos a varios modelos empíricos y controles de endogeneidad. Además, este estudio ofrece un nuevo entendimiento de la ventaja de proximidad de los inversionistas domésticos institucionales con respecto al monitoreo de información. También resalta los roles de los inversionistas locales en la configuración de la gobernanza corporativa en mercados emergentes, en los que el buen gobierno corporativo se ha vuelto cada más importante para la sostenibilidad de largo plazo de las empresas. Una importante implicación para la política es que las autoridades regulatorias deben tener como objetivo promover la participación institucional de los inversionistas en estos mercados.ResumoEste estudo usa uma grande amostra de empresas coreanas para examinar a influência de blockholders institucionais sobre o gerenciamento de ganhos corporativos. O mercado coreano é um cenário interessante para estudar o monitoramento institucional porque é dominado por chaebols, caracterizados por mecanismos de governança interna ineficazes. Encontramos evidências de que os blockholders institucionais evitam a divulgação oportunista de relatórios financeiros, e que essas atividades são mais evidentes entre os blockholders institucionais nacionais. Os blockholders institucionais estrangeiros, especialmente aqueles com objetivos de investimento de curto prazo, levam a relatórios mais discricionários. Nossas descobertas são robustas para vários modelos empíricos e verificações de endogeneidade. Além disso, este estudo oferece uma nova visão da vantagem de proximidade dos investidores institucionais nacionais em relação à monitoração de informações. Também destaca os papéis dos investidores institucionais na definição da governança corporativa nos mercados emergentes, em que uma sólida governança corporativa tornou-se cada vez mais importante para a sustentabilidade a longo prazo das empresas. Uma importante implicação política é que as autoridades reguladoras devem procurar promover a participação dos investidores institucionais nesses mercados.概要本研究用韩国公司的大样本来研究机构大股东对公司收益管理的影响。韩国市场由于被特点是低效的内部治理机制的财团所主导,因而是研究机构监控的一个有趣环境。我们发现的证据表明,机构大股东阻止投机的财务报告,此类活动在国内机构大股东中最为明显。外国机构大股东,特别是那些投资目标短期的,会导致更多任意决定的报告。我们的发现对各种实证模型和内生检查是稳准的。此外,这项研究在监控信息方面对国内机构投资者的接近优势有新见地。这也凸显了在新兴市场公司治理塑造中机构投资者的角色,其中健全的公司治理对公司长期可持续发展日益重要。一个重要的政策启示是,监管部门应着眼于促进机构投资者在这些市场中的参与。
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