Foreign Equity Ownership and Income Smoothing

47 Pages Posted: 13 Aug 2020

See all articles by Boochun Jung

Boochun Jung

University of Hawaii at Manoa - School of Accountancy

Dongyoung Lee

University of Utah - School of Accounting and Information Systems

Ilhang Shin

Gachon University - College of Business and Economics

Desmond Yuen

University of Macau

Date Written: May 1, 2020

Abstract

We examine whether foreign investors influence a local firm’s income smoothing, using a sample of Korean firms from 2000 to 2013. We hypothesize that given innate informational difficulties of overseas investments, foreign investors demand less noisy and more sustainable earnings, and to satisfy this demand, managers have strong incentives to smooth earnings. We find that foreign investors’ ownership is positively related to the level of earnings smoothing. We also find that earnings smoothing improves earnings informativeness in the presence of high foreign-investor ownership, consistent with the notion that foreign investors play an important role in local firms’ information environments.

Keywords: foreign investors; institutional investors; earnings management; income smoothing; earnings informativeness

JEL Classification: M41; M43; J53

Suggested Citation

Jung, Boochun and Lee, Dongyoung and Shin, Ilhang and Yuen, Desmond, Foreign Equity Ownership and Income Smoothing (May 1, 2020). Available at SSRN: https://ssrn.com/abstract=3329721 or http://dx.doi.org/10.2139/ssrn.3329721

Boochun Jung (Contact Author)

University of Hawaii at Manoa - School of Accountancy ( email )

College of Business Administration
Honolulu, HI 96822
United States

Dongyoung Lee

University of Utah - School of Accounting and Information Systems ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States

Ilhang Shin

Gachon University - College of Business and Economics ( email )

Desmond Yuen

University of Macau

P.O. Box 3001
Macau

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