Abstract
We examine the impact of institutional ownership on earnings quality in China. We have employed two proxies of earnings quality: discretionary accruals and real earnings management. Using 19,743 firm-year observations from 2009 to 2017, we find that firms with higher institutional ownership are more likely to display higher earnings quality in lower discretionary accruals and lesser real activities manipulation. Our results are robust after controlling for endogeneity.
•Firms with higher institutional ownership display lower discretionary accruals and lesser real activities manipulation.•The effect of institutional ownership on accruals earnings management is more pronounced for non-SOE firms than SOE firms.•The effect of institutional ownership on real activities management is more pronounced for SOE firms than non-SOE firms.•The effect of institutional ownership on real activities management is more pronounced for local SOE firms than central SOE firms.