Are Passive Investors Enabling Earnings Manipulation?

Summary

Accounting and Reporting Financial Accounting Management Accounting

This study investigates how passive institutional investors—such as index funds—affect companies’ decisions to repurchase their own shares. Specifically, it examines whether firms with higher passive ownership are more likely to engage in opportunistic repurchases that manipulate reported earnings, enabling firms to just meet or beat analysts’ earnings forecasts, which they would have missed absent the repurchase.