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Conference Paper: Governance through trading: Does institutional trading discipline empire building and earnings management?

TitleGovernance through trading: Does institutional trading discipline empire building and earnings management?
Authors
KeywordsGovernance through trading
Institutional trading
Stock returns
Empire building
Earnings management
Issue Date2013
PublisherSocial Science Electronic Publishing, Inc..
Citation
The 48th Annual Conference of the Western Finance Association (WFA), Lake Tahoe, NV., 17-20 June 2013. How to Cite?
AbstractThis paper empirically identifies an important external corporate governance mechanism through which the institutional trading improves firm values and disciplines managers from conducting value-destroying behaviors. We propose a reward-punishment intensity (RPI) measure based on institutional investors' absolute position changes, and find it is positively associated with firm's future risk-adjusted returns and Tobin's Q. Importantly, we find that firms with higher RPI exhibit less subsequent empire building and earnings management. Our results suggest that the improved firm values can be attributed to the discipline effect of institutional trading on managers, which is in line with the argument of 'Governance Through Trading'. Furthermore, we find that the exogenous liquidity shock of decimalization augments the governance effect of institutional trading. We also find that the discipline effect is more pronounced for firms with lower institutional ownership concentration, higher stock liquidity, and higher managers' wealth-performance sensitivity, which further supports the governance role of the RPI.
DescriptionSession - Governance and the Stock Market
Working Paper Series
Persistent Identifierhttp://hdl.handle.net/10722/191804

 

DC FieldValueLanguage
dc.contributor.authorChang, ECen_US
dc.contributor.authorLin, TCen_US
dc.contributor.authorMa, Xen_US
dc.date.accessioned2013-10-15T07:25:53Z-
dc.date.available2013-10-15T07:25:53Z-
dc.date.issued2013en_US
dc.identifier.citationThe 48th Annual Conference of the Western Finance Association (WFA), Lake Tahoe, NV., 17-20 June 2013.en_US
dc.identifier.urihttp://hdl.handle.net/10722/191804-
dc.descriptionSession - Governance and the Stock Market-
dc.descriptionWorking Paper Series-
dc.description.abstractThis paper empirically identifies an important external corporate governance mechanism through which the institutional trading improves firm values and disciplines managers from conducting value-destroying behaviors. We propose a reward-punishment intensity (RPI) measure based on institutional investors' absolute position changes, and find it is positively associated with firm's future risk-adjusted returns and Tobin's Q. Importantly, we find that firms with higher RPI exhibit less subsequent empire building and earnings management. Our results suggest that the improved firm values can be attributed to the discipline effect of institutional trading on managers, which is in line with the argument of 'Governance Through Trading'. Furthermore, we find that the exogenous liquidity shock of decimalization augments the governance effect of institutional trading. We also find that the discipline effect is more pronounced for firms with lower institutional ownership concentration, higher stock liquidity, and higher managers' wealth-performance sensitivity, which further supports the governance role of the RPI.-
dc.languageengen_US
dc.publisherSocial Science Electronic Publishing, Inc..-
dc.relation.ispartof48th WFA Annual Conference 2013en_US
dc.rights© 2011 Social Science Electronic Publishing, Inc. All Rights Reserved. For personal & noncommercial use apply only to specific documents and use of specific SSRN-provided statistics and other information.-
dc.subjectGovernance through trading-
dc.subjectInstitutional trading-
dc.subjectStock returns-
dc.subjectEmpire building-
dc.subjectEarnings management-
dc.titleGovernance through trading: Does institutional trading discipline empire building and earnings management?en_US
dc.typeConference_Paperen_US
dc.identifier.emailChang, EC: ecchang@business.hku.hken_US
dc.identifier.emailLin, TC: chunlin@hku.hken_US
dc.identifier.emailMa, X: xrma@business.hku.hken_US
dc.identifier.authorityChang, EC=rp01050en_US
dc.identifier.authorityLin, TC=rp01077en_US
dc.description.naturelink_to_OA_fulltext-
dc.identifier.doi10.2139/ssrn.2263837-
dc.identifier.hkuros225323en_US
dc.identifier.hkuros226381-
dc.publisher.placeUnited States-

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