Index mutual fund ownership and financial reporting quality

Ahmed Baig, R. Jared DeLisle, Gulnara R. Zaynutdinova

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We examine the relation between index mutual fund ownership and financial reporting quality measured by the propensity for fraudulent statements (Beneish's (1999) M-Score) and accounting aggressiveness (discretionary accruals). We find that index mutual fund ownership is negatively related to both measures of financial reporting quality, suggesting that index mutual funds provide a monitoring role with respect to financial reporting quality. These relations are muted when firms employ one of the four largest auditing firms. The evidence is consistent with the notion that resource-constrained index mutual funds, however, relinquish their monitoring role to Big 4 auditing firms. The monitoring efforts by index mutual funds have an economic impact additional to that performed by active mutual funds. Our results are robust to controlling for a spurious relation between index mutual fund ownership and financial reporting quality.

Original languageEnglish
Article number101755
JournalResearch in International Business and Finance
Volume62
DOIs
StatePublished - Dec 2022

Keywords

  • Corporate governance
  • Discretionary accruals
  • Financial reporting
  • Financial reporting aggressiveness
  • Fraud
  • Index mutual fund ownership

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