Institutional Ownership Differences and Earnings Management: A Neural Networks Approach

This study examines the association between different institutional investors’ ownership and earnings management practice using a neural networks approach. It investigates this relationship for a sample of 121 US firms. We examine also the effect of institutional ownership on the level of accruals management of firms having different information environment (S&P 500 versus non S&P 500). Results show that the involvement of pension funds and banks in the firms’ capitals limits earnings management behaviors. However, investment funds ownership incites to increase earnings. The hypothesis of the relevance of the environment information in the explanation of the institutional investors’ behavior doesn’t seem to be important in our case.