Does Foreign Ownership Increase Financial Reporting Quality?

Yohan An, Yohan An (2015) Does Foreign Ownership Increase Financial Reporting Quality? Asian Academy of Management Journal (AAMJ), 20 (2). pp. 1-21. ISSN 1394-2603

Download (177kB) | Preview


Using panel data, this paper investigates how foreign ownership affects the financial reporting quality of firms listed on the Korean Stock Exchange (KSE), one of the highest foreign-investor capital markets in the world during the period from 2000 to 2005. Existing studies suggest that foreign ownership may either increase or decrease the quality of financial reporting, suggesting that foreign ownership is explained using two conflicting hypotheses: The active-monitoring hypothesis and the transient hypothesis. In emerging markets, where family ownership is predominant, conservatism is an important measure of financial reporting quality because conservatism decreases opportunistic management behaviours and mitigates information asymmetries. This paper tests conservatism as a proxy for financial reporting quality using three piecewise accrual models, proposed by Ball and Shivakumar (Journal of Accounting Research, 44, 207–256 (2006)); the cash flow model, the Dechow and Dichev model, and the Jones model. This research finds that foreign ownership is positively associated with conservatism in all three models. This result supports the active-monitoring hypothesis of foreign ownership, indicating that foreign ownership mitigates managerial opportunism, thereby increasing the quality of financial reporting

Item Type: Article
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28-70 Management. Industrial Management
Divisions: Penerbit Universiti Sains Malaysia (USM Press) > Asian Academy of Management Journal (AAM)
Depositing User: Mr Firdaus Mohamad
Date Deposited: 19 Sep 2017 07:00
Last Modified: 19 Sep 2017 07:00

Actions (login required)

View Item View Item