Abnormal ownership concentration and the value-relevance of accounting information

Abstract

PURPOSE – Ownership of a firm might be concentrated (i.e. a small number of large shareholders) or dispersed (i.e. a large number of small shareholders). Differences in ownership structure can affect the amount and quality of public information about a firm and moderate the value-relevance of reported financial information. We investigate how ownership concentration moderates the value-relevance of book values and earnings. DESIGN/METHODOLOGY/APPROACH – Inferences are derived from a multivariate regression approach, using 361 listed South African firms reporting from 1 January 2010 to 31 December 2019. FINDINGS – More concentrated ownership is associated with lower value-relevance of high-quality earnings. More importantly, ownership concentration that deviates from expectations (abnormal ownership concentration) is associated with lower value-relevance of high-quality earnings and higher value-relevance of book values, irrespective of whether ownership concentration is abnormally high or abnormally low. RESEARCH LIMITATIONS/IMPLICATIONS – Abnormal ownership concentration weakens the association between high financial reporting quality and capital market outcomes. Therefore, optimising ownership structure deserves attention equal to increasing financial reporting quality. ORIGINALITY/VALUE – The key insight of this paper is that the absolute level of ownership concentration matters less than its deviation from expected levels.