Hedge Fund Intervention and Accounting Conservatism

• 成果类型: Article
• 署名作者: Cheng, C. S. Agnes; Huang, Henry He; Li, Yinghua
• 署名单位: Hong Kong Polytechnic University; Yeshiva University; Arizona State University; Arizona State University-Tempe
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12076
• 发表日期: 2015
• 页码: 392-+
• 关键词: CORPORATE GOVERNANCE; unconditional conservatism; asymmetric timeliness; earnings conservatism; SHAREHOLDER ACTIVISM; director characteristics; institutional investors; Audit committee; to-book; OWNERSHIP

摘要

Hedge fund intervention has been associated with many positive corporate changes and is an important vehicle for informed shareholder monitoring. Effective monitoring has also been positively associated with accounting conservatism. Building upon these prior results, we predict an increase in accounting conservatism after hedge fund intervention. We use a large sample of hedge fund activist events and identify control firms with similar likelihoods of being targeted using the propensity score matching method to apply difference-in-difference tests. We find that when hedge fund activists have relatively large ownership and sufficient time to exert their monitoring power, target firms experience significant increases in conditional conservatism. CFO turnovers, upward/lateral auditor switches, and improvements in audit committee independence after intervention are accompanied by greater increases in conditional conservatism. Finally, we find greater increases in conditional conservatism when there is a lack of monitoring by dedicated institutional investors before the intervention. Our study suggests that hedge fund activists improve accounting monitoring tools and thus adds important new evidence on the effectiveness of shareholder monitoring on accounting practices.