Dominant institutional control and earnings informativeness

Abstract

In this paper we analyze the relation between dominant institutional control and earnings informativeness in a sample of non-financial Spanish firms listed on the electronic market over the 1996 to 2009 period. Our results suggest that, when a bank is the firm's dominant owner, increasing his ownership stake beyond the minimum level needed for effective control provides an alignment of interest between the bank and the minority shareholders, what positively affects earnings informativeness. Nevertheless, when the dominant owner is an investment fund, increasing his ownership stake beyond the minimum level needed for effective control reveals the investment fund's desire to obtain greater control premiums when he leaves the firm, what negatively affects earnings informativeness. Our results are consistent with differences in objectives, stability, scrutiny and visibility of both banks and investment funds when they own the effective control of the firm.