Preprint Hypothesis Version 1 Preserved in Portico This version is not peer-reviewed

Institutional Investors' Monitoring Roles in State Controlled Firms and Income Smoothing Analysis for Stable Growth and Sustainability: Focusing on China Stock Market

Version 1 : Received: 27 August 2021 / Approved: 28 August 2021 / Online: 28 August 2021 (15:07:13 CEST)

How to cite: Xu, M.; Kim, D. Institutional Investors' Monitoring Roles in State Controlled Firms and Income Smoothing Analysis for Stable Growth and Sustainability: Focusing on China Stock Market. Preprints 2021, 2021080531 (doi: 10.20944/preprints202108.0531.v1). Xu, M.; Kim, D. Institutional Investors' Monitoring Roles in State Controlled Firms and Income Smoothing Analysis for Stable Growth and Sustainability: Focusing on China Stock Market. Preprints 2021, 2021080531 (doi: 10.20944/preprints202108.0531.v1).

Abstract

The purpose of this study is to examine the relationship between the institutional investors which can affect financial performance for corporate sustainability on the income smoothing. Therefore, this study focus on the connection between the nature of stock rights and income smoothing in China. For this study, hypotheses were established on the relationship each state-controlled companies, income smoothing, and information equilibrium of individual investors, and empirical analysis was conducted through related variables. The analysis results are summarized in three categories as follows. First, this research finds that state-controlled firms (CONTs) prefer income smoothing activities compared to non-state-controlled firms for the long-term sustainable development of firms using data from 2011 to 2019. Second, this study found out that Institutional investors support the behavior of CONTs to smooth their earnings because this behavior is seen as an attempt by CONTs to convey valuable private information to other investors. Third, we was able to discover that institutional investors' monitoring effect is predominantly driven by pressure-resistant institutional investors. This research complements the lack of empirical research on income smoothing and enable to give a guideline that the type of stock rights is a critical key determinant of participation in income smoothing activities for stable growth and sustainability in the future.

Keywords

nature of stock rights; state-controlled firm; income smoothing; institutional investor; pressure-resistant institutional investor; pressure-sensitive institutional investor

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