earticle

영어

Institutional investors have increased their presence in financial markets (Gompers and Metrick, 2011), securing positions as dominant players by becoming actively involved in firms’ operations. Active institutions influence the board of directors and management, thus bringing about changes in corporate policies, influencing governance, and affecting the quality of financial reporting and corporate disclosure. While some studies have found that institutional investors actively monitor firms’ management and mitigate managerial agency problems (e.g., Kaplan and Minton 1994; Chung, Firth, and Kim 2002), other studies have argued that institutional investors seeking to maximize personal benefits influence firm management, prompting managerial opportunism such as earnings management (e.g., Agrawal and Knoeber, 1996; Black, 1998; Parrino, Siasand, and Starks, 2003). Recent papers have focused on the investment horizons of institutional investors, such that long-term institutional ownership improves corporate governance (Lee and Chung, 2012), exhibits less tax avoidance (Khurana and Moser, 2013), and increases investment (Derrien, Kecskés, and Thesmar, 2012). Firms with large portions of transient institutions are more likely to reduce research and development expenditures (Bushee, 1988) and get lower premiums at acquisitions (Gasperet al., 2005). In Korea, domestic institutional investors exhibit short-term trading behavior and fail to contribute to the increase in earnings quality (Cheon, 2003). Likewise, Kwon (2007) classified institutional investors into four types: financial institutions, security companies, insurance companies, and foreign investors. He found that foreign investors and insurance companies improved earnings quality, whereas other local institutional investors tended to focus on short-term profits and did not contribute to the increase in earnings quality. Research has indicated that short-term investors have less incentive to engage in improving a firm’s long-term performance, but use their informational advantage to enjoy the personal benefits of short-term stock trading (Park and Song, 2014). Thus, the monitoring role played by institutional investors is closely related to their investment behavior. In this paper, we study the effect of the investment horizons of institutional investors on the effectiveness of internal control systems over financial reporting. Specifically, we examine how the investment horizons of institutional investors effect the disclosure of material weaknesses in internal control over financial reporting under Section 404 of the Sarbanes-Oxley ACT of 2002. We measure institutional investors’ portfolio turnover using churn rate, as introduced by Gasper et al. (2005), which measures how frequently an institution buys and sells its stocks. Our measure of a firm’s investment horizon is the weighted average of the total portfolio churn rates of its institutional investors. We find that institutional investor ownership decreases both the frequency and the number of material weaknesses under the SOX 404. However, this positive relationship is weakened as institutional investors’ investment horizon for each firm is short-term. These findings suggest that institutional investors’ influence over the effectiveness of internal control is closely dependent on their investment horizons. Our results contribute to the literature that the role of institutional investors in enhancing internal control systems is closely related to institutions’ investment horizons.

한국어

기관투자자는 경영진에 대한 감시활동을 통해 기업가치를 높일 수 있는(e.g., Kaplan and Minton, 1994; Chung, Firth, and Kim, 2002) 반면, 기관투자자 또한 자신의 이익을 극대화하기 위하여 경영진의 기회주의적 행위를 방조하거나 회계이익의 질을 낮추도록 유도할 수도 있다(e.g., Agrawal and Knoeber, 1996; Black, 1998; Parrino, Sias, and Starks, 2003). 이러한 결과는 기관투자자가 기업지배구조에 미치는 영향이 기관투자자의 성격이나 투자행태에 따라서 달라질 수 있음을 시사한다. 본 연구는 기관투자자의 투자행태가 재무보고 시 내부통제의 효율성에 미치는 영향을 분석하기 위하여, 기관투자자의 투자기간(Institutional investor horizon)이 내부통제의 취약점 (internal control weakness)에 미치는 영향을 분석하였다. 실증분석 결과, 기관투자자의 지분율은 내부통제 취약점 보고의 확률과 건수를 모두 감소시키는 반면, 이와 같은 순기능은 기관투자자의 투자기간이 짧아질 경우에 현저히 약화되는 것으로 나타났다. 본 연구의 분석결과는 기관투자자가 자금운용을 위탁한 최종수익자의 대리인으로 수익자가 단기투자를 선호할 경우 장기적 성과보다는 단기적 성과를 보다 중시할 것이 라는 가설에 부합되는 것이다.