The UK stewardship code and investee earnings quality

The UK Stewardship Code was the first voluntary governance code specifically for institutional investors. The Code sets out the principles of effective stewardship by institutional investors toward their investee companies with the aim of improving long-term risk-adjusted returns to shareholders. This paper examines whether compliance by institutional investors with UK Stewardship Code is related to the earnings quality of their investee companies.We investigate the association between institutional investor Code compliance and Code compliance quality and investee company accruals quality.For a sample of large UK listed companies from 2013 we find reasonably high levels of compliance with the Code by both UK and foreign institutional investors. Our analysis does not suggest that Code compliance is positively related to investee company earnings quality. The study offers valuable insights regarding the efficacy of the Stewardship Code’s policy approach to improving corporate governance by institutional investors.