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Ownership, Investor Protection and Earnings Expectations
Author(s) -
Dargenidou Christina,
McLeay Stuart,
Raonic Ivana
Publication year - 2007
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2006.00663.x
Subject(s) - earnings , corporate governance , accounting , shareholder , investor protection , business , earnings response coefficient , institutional investor , value (mathematics) , conservatism , earnings management , monetary economics , economics , finance , law , political science , machine learning , politics , computer science
This study examines the interactive influence of corporate ownership, corporate governance and investor protection on the incorporation of current value shocks in the accounting earnings of European companies. This influence is investigated not only by means of the association between current news and current earnings but also with respect to the association of the same news with expected future earnings, and its persistence. Consistent with the contractual explanation of accounting conservatism, it is shown that the accounting behaviour examined is a function of the demand created by shareholders, and that the institutional arrangements in force are of lesser significance in the presence of widely held ownership. On the other hand, greater separation between supervision and management and stronger investor protection are seen to be influential under close ownership, as these are shown to curb aggressive accounting in the form of a persistently lower recognition of bad news in earnings. Evidence is also provided that stricter corporate governance practices in Europe can substitute for weaknesses in investor protection provisions in law.