A SURVEY ON THE RELATIONSHIP BETWEEN INSTITUTIONAL OWNERSHIP WITH CONSERVATISM, FORECAST EARNING ERROR AND EARNING FORECAST ABILITY

Abstract

Institutional investors’ transactions are sensitive to current earnings news. Hence, there are lots of incentives for managers to avoid reducing dividends. Therefore, when the company's stock ownership is focused among a few investors (especially institutional investors), the problems over separation of ownership and control are reduced. When the shares owned by institutions to increase, leaving company aside would cost more because major stock sales require wholesale discount. Hence, because these stocks have high monetary value, if institutional investors remain inactive or being unaware of the poor performance of the company existing in portfolio, investors are exposed to greater losses than investors who have less interest in a company. In this study, a survey on the relationship between “Institutional ownership” and “Conservatism, Forecast error and The Ability of Earnings to Predict Future Earnings and Cash” at Tehran stock exchange has been addressed. For this, three hypotheses have been proposed so that data assigned to 106 companies among listed companies in Tehran stock exchange using Systematic sampling have been used to test research hypotheses, and data during 2006-2012 have been used
to carry out statistical test. Multiple regression techniques on panel data have been the statistical method used in this study. The results from findings indicate that there exists a direct relationship between “Institutional ownership” and “Conservatism, Forecast error”, and an inverse relationship between “Institutional ownership” and “The Ability of Earnings to Predict Future Earnings and Cash”.