The role of foreign shareholders in disciplining financial reporting Articles uri icon

publication date

  • June 2017

start page

  • 558

end page

  • 592


  • 44

International Standard Serial Number (ISSN)

  • 0306-686X

Electronic International Standard Serial Number (EISSN)

  • 1468-5957


  • We investigate the role of foreign shareholders in improving the quality of accounting information provided by firms domiciled in countries with low de facto institutional quality. Using a sample of firms from four South European countries (Greece, Italy, Portugal and Spain) for which we observe detailed ownership evolutions over the period 2002-2007, we find that increases in foreign ownership lead to increases in financial reporting quality but only if the foreign shareholders are domiciled in countries with strong investor protection mechanisms. Further, we find that the improvement in financial reporting quality is more pronounced in the case of foreign institutional investors. Finally, our results hold before and after the introduction of the International Financial Reporting Standards (IFRS) in 2005.


  • Business
  • Economics


  • earnings quality; foreign investors; institutional investors; ownership structure; international accounting standards; earnings management; corporate governance; institutional investors; loss recognition; director characteristics; economic consequences; mandatory adoption; abnormal accruals; market valuation