Do institutional investor cliques have styles? Evidence from investees’ financial statement comparability in China

We hypothesize that institutional investor cliques synchronize their investees’ financial reporting practices. Using a sample of Chinese firm pairs, we find an increase in financial statement comparability among firm pairs whose largest institutional owners are from the same clique, yielding a 1.6% lower difference in total accruals. This effect arises mainly from conformity in discretionary reporting choices, revealing a distinct “clique style” of reporting. Cross-sectional analyses show that the impact is stronger in low-competition industries, non-state-owned enterprises, and firms with higher agency costs, and is more pronounced when cliques are composed of local or active institutional investors. However, this harmonization entails costs because cliques reduce accrual differences even among economically unrelated firms, which suggests excessive standardization. Moreover, clique-connected firms experience limited improvement in their information environments and diverge in reporting practices from unaffiliated industry peers. Collectively, our findings suggest that in an emerging market, institutional cliques may foster a form of comparability that offers limited usefulness to financial statement users.