An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Laura Yue Liu
University of Oregon

Emma Yan Peng
Fordham University

Abstract: We investigate whether a firm’s accruals quality is affected by its transient and dedicated institutional ownership. Measured as the magnitude of accrual estimation errors, accruals quality is found to be negatively associated with transient institutional ownership and positively associated with dedicated institutional ownership. Causality tests further suggest that transient institutional investors indeed provide managers with incentives to exacerbate accruals quality and provide marginal evidence that dedicated institutional investors effectively monitor managers in terms of accruals quality. In addition, we find similar results when we measure accruals quality by the standard deviation of accrual estimation errors.

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