Qualified Foreign Institutional Investors and the Earnings Informativeness of Income Smoothing

Chen, C. L., Chang, C. C., and Weng, P. Y. 2017. Qualified Foreign Institutional Investors and the Earnings Informativeness of Income Smoothing. NTU Management Review, 27 (4): 1-42. doi:10.6226/NTUMR.2017.MAR.A103-021

Ching-Lung Chen, Professor, Department of Accounting, National Yunlin University of Science and Technology
Chuang-Chang Chang, Professor, Department of Finance, National Central University
Pei-Yu Weng, Ph.D., Department of Accounting, National Yunlin University of Science and Technology

Abstract

This study uses the unbalanced-panel data to establish empirical regression and examines the role of qualified foreign institutional investors (hereafter QFIIs) in earnings informativeness of firms with income smoothing. We also examine whether the role of QFIIs in earnings informativeness for firms with income smoothing has changed since the deregulation of QFIIs’ ownership restrictions. The empirical result reveals that high QFIIs’ ownership weaken the informativeness of earnings for firms with income smoothing in the postderegulation period. It suggests that the deregulation of QFIIs’ ownership accelerates the opportunistic role of QFIIs, in turn, reduces the informative component of earnings for firms with income smoothing. We also find that the result is sensitive to the high QFIIs’ shareholdings volatility case. The result supports the opportunistic role of QFIIs in firm’s income smoothing, yet, is related to QFIIs’ trading strategy. 


Keywords

QFIIsincome smoothingearnings informativenessderegulation


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