Institutional Ownership Composition and Accounting Conservatism

This study empirically investigates the association between institutional ownership composition and accounting conservatism. Transient (dedicated) institutional investors, holding diversified (concentrated) portfolios with high (low) portfolio turnover, focus on portfolio firms’ short-term (long-term) perspectives and trade heavily (generally do not trade) on current earnings news. Thus, I predict that as transient (dedicated) institutional ownership increases, firms will exhibit a lower (higher) degree of accounting conservatism. Consistent with my predictions, in the context of asymmetric timeliness of earnings, I document that as the level of transient (dedicated) institutional ownership increases, earnings become less (more) asymmetrically timely in recognizing bad news.