The influence of foreign institutional investors on audit fees: evidence from Chinese listed firms

Li, Zhe; Wang, Bo

doi:10.1080/01559982.2022.2071183

Cited by 12 publications

(16 citation statements)

References 70 publications

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“…Institutional investors also reduce the misuse of firm's resources by reducing the managerial power and attenuating the relationship between executive pay gap and audit fees (Ge and Kim, 2020). Likewise, Li and Wang (2022) find that, in firms with poor earnings quality, qualified institutional investors enhance the firm value, by increasing monitoring through increased audit effort. Recent evidence also points out that the institutional investors encourage firms in emerging economies to utilize cash holdings or pay out excess cash to investors (Jacob and Lukose, 2018;Jeon et al, 2011), thus reducing the free cash flows under control of the insiders.…”

Section: Role Of Institutional Investorsmentioning

confidence: 95%

Earnings quality, institutional investors and corporate cash holdings: evidence from India

Chada

Varadharajan

2023

IJMF

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PurposeThis paper aims to examine the relationship between earnings quality and corporate cash holdings in an emerging economy. Existing literature posits that earnings quality is a result of information asymmetry and firms with lower earnings quality increases cash holdings, to shield the firm from future uncertainties. In this paper, the authors propose a ‘private benefits hypothesis’, which suggests that lower earnings quality is an indicator of opportunism and expropriation of resources in the firm, through tunneling or excessive executive compensations. As a result, firms with lower earnings quality increase cash holdings in their control, to increase their private benefits and to avoid the scrutiny of the external stakeholders. The authors further examine the monitoring role played by institutional investors on cash holdings, with varying degrees of earnings quality.Design/methodology/approachThis study uses an unbalanced panel data sourced from Prowessdx, from 2000 to 2019. The analysis employs 20,231 firm-year observations from 2,421 firms. Earnings quality is calculated following Dechow and Dichev (2002).FindingsEmpirical analysis confirms that the firms with higher earnings quality reduce cash. Further, institutional investors reduce the cash holdings in firms with higher earnings quality. Institutional investors effectively reduce the cash only in firms with at least 10% of equity shareholding. The results are robust to alternative measures of earnings quality and endogeneity concerns.Originality/valueThis study diverges from the information asymmetry hypothesis in the existing literature on earnings quality and cash holdings and highlights the underlying private benefits hypothesis, that will impact cash holdings. Next, the 10% institutional shareholding is important in the Indian context as it represents the minimum threshold at which block holders can request extraordinary general meetings (Section 100 of the Companies Act 2013) or the involvement of the National Company Law Tribunal (NCLT) (Section 213 of the Companies Act 2013). This study highlights that unlike in Anglo-Saxon economies, institutional investors or other minority shareholders are empowered by the Companies Act 2013 to play a vital role in corporate governance with a mere 10% equity.

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Section: Role Of Institutional Investorsmentioning

confidence: 95%

Earnings quality, institutional investors and corporate cash holdings: evidence from India

Chada

Varadharajan

2023

IJMF

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“…Institutional investors (such as pension funds and investment funds) have shown to be more environmentally concerned and are often the major source of long-term funding. These investors tend to have greater confidence in the quality of green finance products/ services provided in Hong Kong [86], due to the city's adoption of common law and transparent financial regulations on par with international practices [78,85]. Availability in the HKEX market of these green financial instruments could thus leverage private investment in the SCP, and meet its need for finance from a growing supply of green capital from large international institutional investors with a significant appetite for long-term investment in environmental assets and sustainable infrastructure [87].…”

Section: Green Index and Green Derivativesmentioning

confidence: 99%

Meeting financial challenge facing China's Sponge City Program (SCP) – Hong Kong as a gateway to green finance

Chan

Chen

Wang

et al. 2022

Nature-Based Solutions

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“…Moreover, their active involvement in the board meetings restricts the directors to misstate or hide corporate information (Zeng et al, 2013). Lin et al (2009) reported that financial institutions empower the internal audit committee of the corporate board and compel the management to formulate aggressive corporate disclosure policies (Lin et al, 2018). Thus, the review of the literature suggests that litigation risk arises due to a number of governance failures in the firms such as financial statements misstatements, poor disclosure practices, earnings management, abnormal accruals, insider selling, and managerial opportunism (Dong and Zhang, 2019;Field et al, 2005;Houston et al, 2019).…”

Section: Litigation Risk Institutional Ownership and Firm Performancementioning

confidence: 99%

“…, 2013). Lin et al. (2009) reported that financial institutions empower the internal audit committee of the corporate board and compel the management to formulate aggressive corporate disclosure policies (Lin et al.…”

Section: Literature Reviewmentioning

confidence: 99%

Corporate governance, litigation risk and firm performance: a mediation moderating model

Waheed

Mahmood

Wen

2022

IJOEM

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PurposeThe purpose of this research is to investigate how the negative effect of litigation risk on firm performance could be controlled through the channel of voluntary disclosure and under the condition of institutional ownership.Design/methodology/approachTo get the objectives, the study analyzed an unbalanced panel of 918 non-financial listed Chinese firms from 2010 to 18. To capture any expected unobserved heteroscedasticity and autocorrelation in the unbalanced sample, the authors have applied fixed effect regression with robust standard errors clustered at the firms' levels as suggested by Newey and West (1987).FindingsThe research provides that the good disclosure practices and presence of institutional ownership in corporations raise the trust of the investors by making the corporate operation clear in the eyes of the stakeholders. This increases the corporate credibility and as consequence corporations are protected against litigation risk. Thus, in the light of the information asymmetry and signaling theories, voluntary disclosure practices, and financial institutions' ownership, bridges the information gap and transmit a positive signal in the market regarding the better financial performance of the corporations.Research limitations/implicationsThese findings are helpful for the corporate managers for effective strategic decisions, regulatory authorities for policy formulation, and individual investors for developing a diversified investment portfolio.Originality/valueBy applying the mediation and moderation effects, the research enhances the understanding of the underlying causes of the association between a firm's litigation risk and its performance. The current research contributes to the literature, that agency issues which create litigation risk could be settled internally with voluntary disclosure practices and externally with institutional ownership.

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The influence of foreign institutional investors on audit fees: evidence from Chinese listed firms

Cited by 12 publications

References 70 publications

Earnings quality, institutional investors and corporate cash holdings: evidence from India

Earnings quality, institutional investors and corporate cash holdings: evidence from India

Meeting financial challenge facing China's Sponge City Program (SCP) – Hong Kong as a gateway to green finance

Corporate governance, litigation risk and firm performance: a mediation moderating model

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