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臺大管理論叢
第
27
卷第
4
期
respectively. The coefficient of QFII
t
*IS
t
*X
t3
is negative and statistically significant at the
1% level in the post-deregulation subperiod. It suggests that, after controlling the
endogeneity of institutional shareholdings, the Hypothesis 1 has gained empirical supports in
the post-deregulation subperiod. In other words, the deregulation of QFIIs definitely
accelerates the opportunistic role of QFIIs in firm’s strategic income smoothing, which in
turn, reduces the earnings informativeness of income smoothing.
To control the joint effect of IS and QFIIs on the earnings informativeness, this study
further uses an equation in which the QFIIs variable is regressed by the IS variable, to gain
the residual of QFIIs which reflects the components of QFIIs without IS. We replace the
initial QFIIs by the residual value of QFIIs (denoted as QFII_RES) and rerun Equation (2).
The untabulated results reveal that the coefficients of IS
t
*QFII_RES
it
*X
t3
are -0.005 (
t
=
-2.20), -0.003 (
t
= -0.85), and -0.006 (
t
= -2.22), in the IS_QFII, pre-deregulation and post-
deregulation models, respectively. It is fair to conclude that the empirical results are unlikely
confounded by the endogenous relationship between IS and QFIIs on the earnings
informativeness.
In summary, we present evidence consistent with the trading role of QFIIs in the
informativeness of earnings for firms with income smoothing. Except for the empirical
findings from the IS_HH_HL model, which are sensitive to the variable measurement, the
major findings are robust in the additional tests.
6. Conclusion
This study examines the role of QFIIs in earnings informativeness for firms with
income smoothing. The empirical results support the opportunistic role of QFIIs in
managerial income smoothing decisions. However, this opportunistic role of QFIIs, to some
extent, is conditioned on their short-term oriented trading behaviors. Importantly, the
opportunistic role of QFIIs became more pronounced after the deregulation of investment
restrictions for QFIIs, which in turn, reduces the earnings informativeness for firms with
income smoothing.
The participation of QFIIs may decrease the earnings informativeness with income
smoothing because it signals that the blockholders are more likely to access the private
information and adopt self-interested behavior. From the regulating perspective, this
deregulation of capital markets for the QFIIs exacerbates the opportunistic role of qualified
foreign institutional investors. These findings should be of interest to the Securities and
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