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Drawing on data from Chinese A-share listed companies spanning 2016 to 2023, this study investigates how fund holdings influence real earnings management (REM) practices. The results indicate that: (1) There is a significant negative correlation between fund holdings and REM, suggesting strong external oversight; (2) The governance effect of fund holdings is more pronounced in non-state-owned firms and those with a balanced equity structure, underscoring the critical roles of ownership nature and equity distribution; (3) High-quality internal controls also exhibit a significant negative correlation with REM, serving as a mediating factor between fund holdings and earnings management. These findings deepen our understanding of how institutional investors contribute to corporate governance and enhance internal control systems.
Lian et al. (Thu,) studied this question.