The Role of Foreign Shareholders in Disciplining Financial Reporting

Abstract

We investigate the role of foreign shareholders in improving the quality of accounting information provided by firms domiciled in countries with low de facto institutional quality. Using a sample of firms from four South European countries (Greece, Italy, Portugal and Spain) for which we observe detailed ownership evolutions over the period 2002-2007, we find that increases in foreign ownership lead to increases in financial reporting quality but only if the foreign shareholders are domiciled in countries with strong investor protection mechanisms. Further, we find that the improvement in financial reporting quality is more pronounced in the case of foreign institutional investors. Finally, our results hold before and after the introduction of the International Financial Reporting Standards (IFRS) in 2005.

Three essays on the effects of foreign direct investment on the host-country companies: An analysis in the private setting

“…For the sake of comparability, we provide some references of our sample characteristics with regard to other studies using Spanish data. As expected, our sample firms are smaller and less leveraged than listed Spanish firms included in the sample of Beuselinck, Blanco, and García-Lara (2017). As compared to the private firms with audited financial statements used in Cano-Rodríguez and Sánchez-Alegría (2012), our sample firms are larger, and have higher growth rates, while they are similar in terms of leverage and profitability.…”

“…: Beuselinck, Blanco, & García-Lara, 2017). However, these results cannot be extrapolated to private firms because they are different from public firms along a number of important dimensions that determine financial reporting quality .…”

“…In some studies, the presence of foreign investors is associated with higher accounting quality (e.g. : An, 2015; Ben-Nasr, Boubakri, & Cosset, 2015;Beuselinck, Blanco, & García-Lara, 2017;Khanna & Palepu, 2000). However, there is 8 Thesis overview also evidence suggesting that, while improving the quality of the financial information systems attracts FDI flows into a country/company, foreign investment does not improve the quality of the accounting information of local firms (e.g.…”

“…Our study shares the geographical setting described by Beuselinck, Blanco, and García-Lara (2017). However, we focus on private companies, whose specificities make it difficult to extrapolate the arguments of the studies carried out in the public setting.…”

Is gender diversity in ownership structure related to private Italian companies propensity to engage in earnings management practices?

“…Authors agree that this article remain permanently open access under the terms of the Creativ e Commons Attribution License 4.0 International License Ding et al, 2007;Liu and Lu, 2007;Roodposhti and Chashmi, 2011;Wang and Yung, 2011), or foreign investors (Beuselinck et al, 2013). Although the findings of previous studies are not conclusive, in most cases the existence of a relationship between the type and characteristics of shareholders and earnings management practices has been discovered.…”