Institutional investors' corporate site visits and aggressive financial reporting

Abstract

This paper investigates the impact of institutional investors' corporate site visits on financial reporting aggressiveness. While prior research has shed light on the monitoring impact of institutional shareholding on firms' financial reporting practices, institutional investors' preference regarding financial reporting remains unclear. Using a sample of Chinese firms listed on the Shenzhen Stock Exchange from 2012 to 2019, we find that institutional investors' on‐site visits significantly increase financial reporting aggressiveness of hosting firms. The on‐site visit effect is more salient in firms that are more sensitive to the influence of institutional investors, for example, firms with a less powerful chief executive officer, financially constrained firms, and firms operating in competitive industries. Our study highlights that under a setting of weak minority shareholder protection such as in China, managers are likely to recognize revenue aggressively to please powerful shareholders who paid intensive attention to them.

Disclosure of strategic collaborative agreements and the cost of equity capital

“…We further adopt the two-step GMM estimation method to address endogeneity. Following Cui et al (2023), we include the one-period lag of the dependent variable and two-period lags of independent variables as instruments for D_SCFA in the regressions. The results of GMM estimation are shown in Table 9.…”