In this paper, I investigate the role of long-term institutional investors in firms’ accounting conservatism. Using exogenous shocks to the attention of long-term institutional investors, I find significantly less timely loss recognition at the time of long-term institutional investors’ distraction. The decrease in loss recognition timeliness is more pronounced among firms with lower information asymmetry ex-ante, firms lacking other governance mechanisms that can effectively monitor managers, and firms operating in non-competitive industries, where lack of competitive pressure weakens the strategic considerations of timely loss recognition. Further analysis identifies the reporting of special items as a potential mechanism through which firms adjust the timeliness of loss recognition in response to changes in long-term institutional investors’ attention.
Bibliographical noteFunding Information:
The author gratefully acknowledges helpful comments from Paul André (Editor), an anonymous reviewer, Bing Li, Nayana Reiter, Nancy Su, Hong Zou, and participants at the 2018 American Accounting Association Annual Meeting. This research has benefited from financial support of Lingnan University, Hong Kong Special Administrative Region, China.
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- accounting conservatism
- corporate governance
- financial reporting
- long-term institutional investors
- shareholder attention
- timely loss recognition