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Does Institutional Blockholder Short‐Termism Lead to Managerial Myopia? Evidence from Income Smoothing

We examine institutional blockholders&#8217; influence on income&#8208;smoothing practices in the Korean market, which provides an interesting setting where family&#8208;oriented chaebols dictate the corporate landscape and impede shareholder activism. The empirical results reveal that institutional shareholders with a short&#8208;term (long&#8208;term) investment horizon facilitate (constrain) managerial myopia. This positive (negative) association is most evident among firms with domestic institutional investors. Therefore, we argue that the presence of domestic institutional investors with transient investment goals incentivizes firms&#8217; management to smooth out earnings.