The Role of Foreign Shareholders in Disciplining Financial Reporting

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 det...

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Bibliographic Details
Published inJournal of business finance & accounting Vol. 44; no. 5-6; pp. 558 - 592
Main Authors Beuselinck, Christof, Blanco, Belen, García Lara, Juan Manuel
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.05.2017
Subjects
earnings quality
Financial reporting
foreign investors
Institutional investments
institutional investors
International finance
International Financial Reporting Standards
Ownership
ownership structure
Quality
Stockholders
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Summary: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.
Bibliography:The first author is from IESEG School of Management and LEM, France. The second author is from the University of Adelaide, Australia. The third author is from Universidad Carlos III de Madrid, Spain. This paper has benefited from presentations at the INTACCT Workshop (Varna), the 38th European Accounting Association Annual Congress (Glasgow), the VII Symposium for Accounting Academics (Madrid), the 9th EUFIN Workshop on European Financial Reporting (Valencia) and from seminar participants at IESEG School of Management, the University of Antwerp and the University of Padua. The authors gratefully acknowledge financial support from the European Commission Research Training Network INTACCT, from the Spanish Ministry of Economy and Competition (ECO2016‐77579 and ECO2013‐48328), from the Government of Comunidad de Madrid (H2015/HUM‐3417, INNCOMCON‐CM) and from the Ramón Areces Foundation.
ISSN:0306-686X
1468-5957
DOI:10.1111/jbfa.12239