TY - JOUR
T1 - Index mutual fund ownership and financial reporting quality
AU - Baig, Ahmed
AU - DeLisle, R. Jared
AU - Zaynutdinova, Gulnara R.
N1 - Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022/12
Y1 - 2022/12
N2 - 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.
AB - 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.
KW - Corporate governance
KW - Discretionary accruals
KW - Financial reporting
KW - Financial reporting aggressiveness
KW - Fraud
KW - Index mutual fund ownership
UR - http://www.scopus.com/inward/record.url?scp=85136473708&partnerID=8YFLogxK
U2 - 10.1016/j.ribaf.2022.101755
DO - 10.1016/j.ribaf.2022.101755
M3 - Article
AN - SCOPUS:85136473708
SN - 0275-5319
VL - 62
JO - Research in International Business and Finance
JF - Research in International Business and Finance
M1 - 101755
ER -