Which Institutional Investors are More Effective Monitors, Domestic or Foreign? Evidence from International Earnings Management

August 15, 2013 Leave a comment

Which Institutional Investors are More Effective Monitors, Domestic or Foreign? Evidence from International Earnings Management

Incheol Kim University of South Florida

Steve Miller Saint Joseph’s University

Hong Wan State University of New York at Oswego

Bin Wang University of South Florida

July 27, 2013

Abstract: 
We study the impact of domestic and foreign institutional investors on earnings management in 37 non-U.S. countries from 2000 to 2009. We find that domestic institutions are more effective than foreign institutions at constraining earnings management. Further, the deterrence effect on earnings management is larger when institutions are more independent, when firms have higher levels of asymmetric information, or when the firms’ countries are characterized by greater information asymmetry and stronger investor protection. Our results are consistent with the argument that geographic proximity enhances monitoring effectiveness. Our paper shows that monitoring effectiveness is impacted by a plethora of factors and offers a nuanced view on the subject, which suggests that different institutions have comparative advantages in performing different monitoring tasks.

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Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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