Independent block institutional investors with long-term horizons and earnings forecast errors by financial analysts

Existing research on the South Korean capital market does not systematically examine the key characteristics of institutional investors, such as independence, block ownership, and long-term orientation, and the mechanisms through which their monitoring exerts influence. This study examines whether, and through which channels, independent block institutional investors with long-term investment horizons influence the accuracy of analysts’ earnings forecasts. Using a sample of South Korean firms for the 2003–2014 period, we conduct regression analyses to test our hypotheses. The results show that independent block institutional investors significantly reduce analysts’ earnings forecast errors. Specifically, these investors limit managerial earnings management and strengthen external audit effort, both of which reduce forecast errors. Furthermore, investors with long-term investment horizons have a more pronounced effect on improvement in forecast accuracy than their short-term counterparts. These findings underscore the critical role of institutional investors’ monitoring characteristics and clarify the mechanisms through which they improve forecast accuracy. This study contributes to the literature by identifying specific attributes and channels of effective investor monitoring. It provides practical implications for policymakers, stakeholders, and market participants seeking to evaluate the monitoring effectiveness of institutional investors.