Institutional ownership and accounting transparency

This study proposes and tests a series of related hypotheses concerning the impacts of institutions' monitoring on managers' investing - financing - operating activities as well as accounting and reporting the outcomes of such activities. In developing and testing the hypotheses, the study theoretically characterizes the term "accounting transparency" and provides a methodological framework within which the effects institutions' monitoring has on firms' accounting transparencies can be inferred from market prices. The results indicate that firms with higher level of institutional ownership exhibit higher accounting transparencies, larger idiosyncratic risks, and larger earnings response coefficients. These results imply that institutional monitoring curbs managers' opportunistic behaviors associated with investing - financing - operating activities as well as accounting/reporting activities. The results also imply that the so-called "transient" view of the role of institutional investors does not hold. Additionally, the study obtained the comparable results as to the monitoring by international investors. Results indicate that international investors also monitor managers' actions but the strength of the monitoring is weaker than that by (domestic) institutional investors.