Corporate disclosure and the informational efficiency of stock prices: New evidence

Previous research shows, using data from three quarters after the implementation of regulation fair disclosure (Reg FD), that there is an improvement in the informational efficiency of stock prices after Reg FD. We compare the informational efficiency of stock prices in four pre‐Reg FD quarters (1999–2000) and 12 post‐Reg FD quarters (2002–2005). The improvement in the informational efficiency of stock prices previously reported in the immediate aftermath of Reg FD persists in later periods.

Social media, investor‒firm interactions and informational efficiency of stock prices: Evidence from China

This study investigates the effects of investments by qualified foreign institutional investors (QFIIs) on the informational efficiency of stock prices in Chinese A‐share stock markets. Employing a large sample of listed firms from 2004 to 2012, we document a significant and positive relationship between stock price informativeness and stock ownership by foreign institutional investors. We also use the instrument‐variable approach, propensity‐score matching method, as well as an alternative measure of informational efficiency to ensure the robustness of our findings. We document that the effects of foreign ownership on informational efficiency is stronger for firms with lower levels of assets intangibility and in regions with less developed institutions. In addition, we document that the effects of foreign ownership on informational efficiency is more pronounced when QFIIs have better local information and more incentives to monitor.

Do foreign investors improve informational efficiency of stock prices? Evidence from Japan

Do Foreign Investors Improve Informational Efficiency of Stock Prices? Evidence from Japan

We examine how passive institutional ownership affects the informational efficiency of stock prices. Because passive institutional investors prefer greater transparency, their presence encourages managers to enhance firm disclosure (Boone & White, 2015; Schoenfeld, 2017). Increased disclosure improves the information environment and reduces information uncertainty, leading to lower post-earnings announcement drift (PEAD) and greater price efficiency (Hung et al., 2015; Zhang, 2006). Accordingly, we predict that higher passive institutional ownership strengthens the contemporaneous market response to earnings announcements while mitigating PEAD. Using firm additions to the S&P 500 index as an exogenous shock, we document that increases in passive institutional ownership lead to greater firm disclosure. Consistent with our prediction, we find higher earnings response coefficients (ERC) and weaker PEAD among firms with greater passive institutional ownership. Decomposing earnings into firm-specific and systematic components, we further show that the higher ERC and weaker PEAD arise from the timely incorporation of both components into prices. Our findings contribute to the ongoing debate on whether the rise of passive investing enhances or impairs price efficiency.

In this study, we explore the impact of the China Securities Investor Services Center (CSISC), a regulatory minority institutional shareholder, on the informational efficiency of stock prices. Using hand-collected data of CSISC rights exercising on listed companies from 2013 to 2022, we find that the exercising of rights by CSISC significantly improves firms’ informational efficiency, especially in regions with weak legal environment, for firms without political connections or external regulatory inquiries. Channel analyses reveal that the enforcement by CSISC promotes informational efficiency through (i) the quality of internal controls, (ii) regulatory deterrent, and (iii) public attention. We further document that the difference in exercising methods and intensities contribute to the adjustment of CSISC enforcement actions. Our findings have important policy implications for enhancing minority investor protection and capital market information effectiveness.

In this paper I examine the effects of private and public disclosures on the informational efficiency of stock prices. In addition to making a public announcement such as an earnings announcement, a public firm can make private disclosure to an analyst. If the analyst's relative information advantage is below a threshold level, private disclosure to the analyst leads to more efficient stock price. I demonstrate that the allocation of information across market participants is an important determinant of price efficiency. While accounting regulators often argue the need for equal access to information, the paper shows that there are conditions under which a limited amount of informational inequality may lead to more efficient stock prices.

Insiders’ shares can act as collateral while raising funds from lenders. This study examines the impact of insiders’ stock pledging activities on stock price informativeness using a sample of 1835 Indian firms. Our findings report that insider stock pledging increases the informational efficiency of stock prices. This informational efficiency increases for larger firms with: (1) financial constraints (high leverage and low cash holdings); (2) greater reliance on trade credit; and (3) higher indulgence in related party transactions. We also provide evidence on abnormal share turnover as a trading mechanism through which insider stock pledging is related to stock price informativeness. Our findings are robust across different specifications and after accounting for endogeneity issues.

We use computer-intensive techniques to study the informational properties of forward-looking disclosures in the management discussion and analysis (MD&A) sections of 10-K filings made with the Securities and Exchange Commission. We find that firms make more forward-looking MD&A disclosures when their stock prices have lower informational efficiency, i.e., when their stock prices poorly reflect future earnings information. The greater levels of forward-looking MD&A disclosures help improve yet are unable to completely mitigate the lower informational efficiency of stock prices for such firms. These findings are stronger for operations-related forward-looking disclosures, disclosures that are made prior to 2000, and disclosures made by loss firms. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1921 . This paper was accepted by Mary Barth, accounting.

We examine whether stock price clustering on round pricing increments leads to less efficient stock prices. In panel data tests, we find a positive association between price clustering and market inefficiency. To draw stronger causal inferences, we use the 2016 US Securities and Exchange Tick Size Pilot Program, which exogenously imposed price clustering on a group of treatment stocks. A difference‐in‐differences analysis shows that relative to control stocks, treatment stocks became less efficient during the Pilot period. We also find a reversal effect upon the conclusion of the Pilot. These results suggest that causality flows from price clustering to market inefficiency.

Short Selling Around Corporate Acquisitions

International Evidence on Algorithmic Trading

Using industry portfolios as test assets and a battery of statistical tests, we study if the informational efficiency of stock prices has declined after the COVID-19 crisis began. The results suggest that the predictability of stock returns in some industries has increased during the COVID-19 period. Markets appear to have become less informationally efficient during the COVID-19 crisis. JEL Classification Code: C58, G01, G10, G14.

Discussion of “ETFs and information transfer across firms”