Institutional Investors’ Corporate Site Visits and Aggressive Financial Reporting

This study finds that institutional investors’ on-site visits significantly increase financial reporting aggressiveness, proxied by the level of accruals. Our results are robust using alternative measures of aggressive financial reporting, e.g., positive reporting tone and the likelihood of financial restatements. In addition, the effect of on-site visits on aggressive financial reporting is more salient in firms that are more sensitive to the influence of institutional investors, e.g., firms with a less powerful CEO, financially constrained firms, and firms operating in competitive industries. Overall, our study highlights that under a setting of weak minority shareholder protection such as in China, managers are likely to recognize revenue aggressively to please powerful shareholders who paid intensive attention to them. We add to the literature that institutional investors’ attention can function as a mechanism that affects corporate decisions