Does Institutional Ownership Influence Earnings management? Evidence from Morocco

Abstract

The purpose of this paper is to shed light on the effect of institutional ownership on earnings management practices in the Moroccan context where corporate governance standards and investors’ legal system protection are poorly implemented. Based on a sample of Moroccan listed companies from 2012 to 2017 and a fixed effect regression model, estimated with robust errors and clustered at the firm levels, our empirical results show that there is no significant relationship between institutional ownership and earnings management by discretionary accruals. However, our additional tests demonstrate a nonlinear inverted-U shaped relationship between institutional ownership and earnings management.