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Managing Earnings Surprises in Japan: Perspectives from Main Bank Relationships and Institutional Ownership
Author(s) -
Baik Bok,
Choi Wooseok
Publication year - 2010
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.1468-5957.2009.02167.x
Subject(s) - shareholder , incentive , institutional investor , earnings , business , accounting , capital market , monetary economics , financial system , finance , economics , corporate governance , market economy
In this study, we examine the impact of main bank relationships and institutional ownership on management's incentives to meet or beat analysts’ expectations in Japan. We hypothesize that close main bank relationships reduce managers’ incentives to meet or beat analysts’ expectations since investors place less weight on the need to achieve capital market‐based performance benchmarks. Consistent with our prediction, we find that firms with close main bank relationships are less likely to meet or beat analysts’ expectations. In contrast, we find that the incidence of meeting or beating analysts’ consensus forecasts is greater for firms with institutional shareholders, suggesting that such investors place greater importance on achieving capital market–based performance benchmarks. Overall, our findings support the notion that banks and institutional investors play a significant role in firms’ financial reporting behavior.