Corporate Disclosure Practices, Institutional Investors, and Stock Return Volatility

Abstract

This paper investigates whether a firm's disclosure practices affect the composition of its institutional investor ownership and, hence, its stock return volatility. The findings indicate that firms with higher AIMR disclosure rankings have greater institutional ownership, but the particular types of institutional investors attracted to greater disclosure have no net impact on return volatility. However, yearly improvements in disclosure rankings are associated with increases in ownership primarily by transient institutions, which are characterized by aggressive trading based on *University of Pennsylvania; tCharles River Associates Incorporated. The authors would like to thank Ray Ball, Mary Barth, Mark Bradshaw, Bob Bowen, Dave Burghstahler, Paul Healy, Amy Hutton, Bjorn Jorgensen, Mark Lang, Charles Lee, Richard Leftwich, Tom Lys, James Myers, Greg Miller, Nancy Rothbard, Krishna Palepu, Ray Pfeiffer, Abbie Smith, Brett Trueman, and an anonymous reviewer, as well as workshop participants at the 1999 American Accounting Association Annual Meeting, the Australian Graduate School of Management, Dartmouth College, Emory University, Harvard University, the 2000Journal of Accounting Research Conference, Massachusetts Institute of Technology, Northwestern University, Ohio State University, the 1999 Stanford University Summer Camp, the University of Iowa, the University of Sydney, the University of Washington, and Washington University-St. Louis for helpful comments and suggestions. Subsets of the Association for Investment Management and Research (AIMR) data used in this paper were generously provided by Christine Botosan, Amy Hutton, Russ Lundholm, Linda Myers, and Marlene Plumlee. The authors gratefully acknowledge the financial support of Harvard Business School's Division of Research and the University of Chicago Graduate School of Business. The opinions expressed in this paper do not necessarily reflect those of Charles River Associates Incorporated.