Institutional Holdings Research Articles

Strategic Risk Shifting and the Idiosyncratic Volatility Puzzle: An Empirical Investigation

We find strong empirical support for the risk-shifting mechanism to account for the puzzling negative relation between idiosyncratic volatility and future stock returns. First, equity holders take on investments with high idiosyncratic risk when their firms are in distress and receive less monitoring from institutional holders as well as when the aggregate economy is in a bad state. Second, the strategically increased idiosyncratic volatility decreases equity betas, particularly in bad states when the market risk premium is high. The negative covariance between the equity beta and the market risk premium causes low and negative returns and alphas in firms with high idiosyncratic volatility. This paper was accepted by Tomasz Piskorski, finance.

Participation of young people with disabilities and/or chronic conditions in low- and middle-income countries: a scoping review.

The purpose of this scoping review was to describe and map the literature available on the participation of young people (0-21y) with disabilities and/or chronic conditions living in low- and middle-income countries (LMICs). A systematic search and selection process identified 78 publications. Descriptive data were extracted using a data-charting form, and studies were mapped using the family of participation-related constructs framework. The findings demonstrated that, although the published evidence is steadily increasing, the participation research on this vulnerable population is still either absent or very scarce in the majority of LMICs, and very little is known about the participation of children with chronic health conditions. Most studies included in this review focused on attendance or 'being there'. Although attendance is an important aspect, more needs to be done to understand children's experiences or involvement while attending, thus capturing both dimensions of participation. There is an increasing trend in research on participation patterns of children with disabilities in low- and middle-income countries. Most research focuses on children's attendance, or 'being there'. We know very little about children's involvement, or experience, while attending daily activities.

Is herding spurious or intentional? Evidence from analyst recommendation revisions and sentiment

Using institutional holdings data for 1993–2015, we investigate whether institutional herding is spurious or intentional by analysing the impact on herding of analyst recommendation revisions and sentiment. In addition to examining their effect separately, we consider the impact of their interaction. Utilising the Sias method, we develop competing hypotheses concerning spurious and intentional herding, an issue of direct interest to fund investors, given the principal-agent relationship inherent in fund management. Results strongly suggest herding is spurious. Analysis of the relationship between herding and subsequent returns, and findings from robustness tests add further support.

On the Rationality of Institutional Investors: The Case of Major Industrial Accidents

To determine if institutional investors act more rationally than individual investors, we examine the stock market price drop following 173 major industrial accidents from 1959 to 2017. In most cases, this drop, generally considered excessive, rapidly reverses. Using meta-analysis techniques, we distinguish events likely to trigger a large negative mid-term market reaction (potentially destructive events) from other events. For firms with large institutional holdings, we show that the market drop following potentially destructive events (potentially nondestructive events) is significantly larger (smaller). This is consistent with the hypothesis that investors’ potential irrational reaction depends on their sophistication.

Short-Sale Deregulation and Corporate Tax Avoidance: Evidence From the Chinese Market

We study how short selling affects corporate tax avoidance. By exploiting staggered short-sale deregulation on the Chinese stock market as a source of variation in market pressure and monitoring, our difference-in-differences estimates show that the introduction of a short-selling scheme significantly discourages pilot firms from engaging in tax avoidance. We also find that the negative effect of short selling on tax avoidance is more pronounced for firms that have high advertising costs and high institutional holdings and are located in weak tax law-enforcement regions. We further reveal that short selling has an indirect effect on tax avoidance through the additional external pressure exerted by auditors, media, and financial analysts. Our evidence highlights the monitoring and discipline roles that short sellers play in determining the level of corporate tax avoidance.

The role of institutional investors in post-earnings announcement drift: evidence from China

We examine how institutional investors influence post-earnings announcement drift (PEAD) in China. Our findings suggest that institutional holdings are positively correlated with PEAD in China, especially when institutional investors herd strongly on earnings news. This positive relationship is more salient for institutional investors with shorter investment horizons and in firms with higher information opacity. We also find that stock prices reverse in the fourth quarter after the earnings announcement. In contrast to the well-established view that institutional investors exploit PEAD and accelerate the speed of information incorporation, our findings suggest that they may instead exacerbate PEAD and slow down price discovery in emerging markets with different institutional backgrounds.

The Role of Institutional Investors in Post-Earnings Announcement Drift: Evidence from China

We examine how institutional investors influence post-earnings announcement drift (PEAD) in China. Our findings suggest that institutional holdings are positively correlated with PEAD in China, especially when institutional investors herd strongly on earnings news. This positive relationship is more salient for institutional investors with shorter investment horizons and in firms with higher information opacity. We also find that stock prices reverse in the fourth quarter after the earnings announcement. In contrast to the well-established view that institutional investors exploit PEAD and accelerate the speed of information incorporation, our findings suggest that they may instead exacerbate PEAD and slow down price discovery in emerging markets with different institutional backgrounds.

PENGARUH PROFITABILITAS, STRUKTUR KEPEMILIKAN DAN REPUTASI KAP TERHADAP NILAI PERUSAHAAN (Studi Kasus Perusahaan Kimia di Bursa Efek Indonesia Tahun 2013 – 2017)

This study aims to analyze the effect of profitability on firm value, analyze the influence of inside ownership on firm value, analyze the influence of institutional holdings on firm value, and analyze the influence of KAP reputation on firm value in chemical companies listed on the Indonesia Stock Exchange in 2013-2017. This research is quantitative research. Where the data obtained is in the form of numbers which are then processed and analyzed to get an overview and relationship between the variables used. Data analysis used in this study is multiple linear regression analysis using SPSS as a tool. The results of this study indicate that there is a positive and significant effect on profitability on firm value, there is a positive and significant influence on the ownership of firm value, there is a positive and significant influence of institutional holdings on firm value, and there is a positive and significant influence on the firm's KAP reputation.

Green Building, Cost of Equity Capital and Corporate Governance: Evidence from US Real Estate Investment Trusts

Distinct from the existing literature, which mainly focuses on the impacts of green building practices on the owners’ benefits, this paper examines capital market participants’ perceptions of green building, specifically, the cost of equity capital. The study uses data regarding the United States Real Estate Investment Trusts (US REITs) from 2000 to 2016, employing a panel regression analysis and adopting a Price Earnings Growth (PEG) ratio model for the cost of equity capital estimation. We find a negative relationship between green building certification and the cost of equity capital. Our results encourage REITs to participate in green building certification and aim for higher green building rankings. In addition, we examine whether corporate governance could affect the intensity of green building practices in REITs. It is found that corporate governance practices implemented to align shareholders’ and managers’ interests, such as higher institutional holdings and a less dispersed ownership structure, positively impact firms’ resource allocation for green initiatives. The results suggest there could be mutual benefits for both economic profits and sustainable buildings.

One Man's Gain is Another's Pain: The Effect of Strengthening Creditor Rights on the Cost of Equity Capital

Using the difference-in-difference approach, we find that the staggered enactment of anti-recharacterization laws, which strengthened creditor rights by enhancing the ability of creditors to repossess collateral during bankruptcy, leads to lower cost of equity capital of the treated firms. We explore the underlying mechanism and find that this new evidence is present only in financially constrained firms. Further, the most impacted firms are those that enter the shock period with more need of external financing and those with post-shock increase in debt financing and debt maturity. We also find that increased institutional holdings and improved information quality (i.e. a decrease in analysts forecast dispersion) are channels through which stronger creditor rights decrease the coast of equity financing. Our findings provide supportive ground to the introduction of laws or regulations that strengthen the rights of other stakeholders.

Does corporate governance affect CEO compensation in Indian manufacturing firms?

This study examines the effects of (a) chief executive officers (CEO) pay dynamics, (b) corporate governance characteristics, and (c) the impact of environmental, social, and governance disclosure practices on CEO compensation. Data of 282 Indian manufacturing firms were collected from Bloomberg database from 2013–14 to 2018–19. This study uses Generalized Method of Moments estimation technique to assess the impact of corporate governance on CEO compensation. The empirical estimates reveal that increase in board size, board independence, women director in board, CEO duality, and institutional holdings reduced CEO compensation. Furthermore, the environmental, social, and governance disclosure confirmed that higher firm disclosures help to streamline CEO compensation. It has also been found that CEOs' current compensation is affected by their previous pay. This study corroborates the objectives of Companies Act 2013 to streamline the governance practices for optimizing CEO compensation.

Dividend Policy and Institutional Holdings: Evidence from Australia

This paper investigates the relationship between dividend payout and institutional ownership for all Australian listed firms in the period between 2001 and 2015. In our univariate tests, we find that institutional investors, in general, prefer dividend-paying firms more than non-paying firms, and for the dividend-paying firms in our sample, institutional investors hold more shares in the firms who pay higher dividends. We further explore the causality between dividend payout and institutional ownership in our multivariate tests with our panel data. The results show an insignificant effect of institutional ownership (dividend payout) on the future dividend payout (institutional ownership) while controlling for firms’ fundamentals, that a higher dividend yield does not attract more institutional investors and that there is no catering to Australian institutional investors.

Rule- vs. Principle-Based Accounting Standard and Earnings Characteristics : An Analysis Using ASC 606

We examine the effect of the adoption of the new revenue recognition standard (ASC 606) on earnings quality and the role of earnings in the debt market. We find that ASC 606, a transition from a rules-based to a principles-based accounting standard, decreases earnings predictability, which is demonstrated by increased absolute analyst forecast error and analyst forecast dispersion, and increases the use of discretion in preparing earnings numbers, which is demonstrated by increased discretionary accruals. In addition, the use of earnings-based covenants decreases in debt contracting, while the use of capital-based covenants increases, which indicates a decrease in the usefulness of earnings numbers in contracting. In terms of the stock market response, overall, the earnings response coefficient (ERC) does not change after the new rule. However, following the adoption, the ERC has increased for firms with high institutional holdings and decreased for firms with low institutional holdings. Our analysis supports the idea that this is due to monitoring from institutional investors curbing the use of discretionary accruals.

Know thy neighbor: Political uncertainty and the informational advantage of local institutional investors

Abstract Previous literature finds a positive association between short-term changes in institutional holdings (especially those of local institutions) and subsequent short-term stock performance. We contribute by investigating the importance of geographical proximity under policy uncertainty. We show that the short-term informational advantage of local institutions only thrives in areas that are either politically closely aligned with the president or where the state government (governorship and legislature) is under the control of one party. Our findings are important in understanding the avenues through which geographical proximity may provide the basis for exploitable informational advantages.

Are Institutional Investors Concerned about Corporate Social Responsibility Risk?

This paper uses the data of the RepRisk database to construct corporate social responsibility risk indicators (CSR Risk), and examines the relationship between corporate social responsibility risk and institutional holdings. The study found that there is a significant negative correlation between the institutional investor’s shareholding and corporate social responsibility risk, and the above relationship is even more pronounced in regions with a higher degree of marketization, state-owned listed companies, and companies with better operating performance. In further analysis, this article finds that corporate social responsibility risk will negatively affect earnings sustainability and corporate value, which means that investors investing in companies with higher social responsibility risk will reduce the investment value.

Market Reactions to the Arrival and Containment of COVID-19: An Event Study

We study the short-term market reactions of US and European stocks during the beginning of the COVID-19 pandemic. Employing an event study, we document that stocks react significantly negatively to the announcement of the first death in a given country. While our results suggest that the announcements of country-specific fiscal policy measures negatively affect stock returns, monetary policy measures have the potential to calm markets. These reactions are either intensified or lessened by firm-specific characteristics such as tangible assets, liquidity, and institutional holdings.

Archives without a Lobby: On the Situation of Institutional Holdings in Galleries and Art Museums

The subject of this article is the situation of archives of art institutions with regard to their public accessibility and usability. After some introductory remarks on the importance of an archive policy for a democratic culture and the problem of terminology when talking about archives, I will take a look at the project Folding the Exhibition. This research project is one of the first in the European context to deal with the situation of institutional archives holdings in the field of art from a practical perspective. This will be complemented by a look at the specific practice in North America, where archivists of galleries and art museums are much more integrated in the archival professional discourse than their European counterparts. As a result, they are also better equipped to meet the challenges of digitization—the subject of the last part of this contribution. In the case of the archives, these challenges are not limited to questions of storing and mediating digital objects but bring to the fore the question of how to organize the historical transmission of processes that no longer leave a “paper trail” in the literal sense. In this respect, the difficulties associated with digitization are also not primarily technical, but rather organizational in nature. The possibility of mastering these difficulties is primarily dependent on the availability of appropriate resources and trained personnel. In the case of art institutions, this is usually the biggest problem.

The More We Know, the Less We Agree: A Test of the Trading Horizon Heterogeneity Theory

We examine the Kondor theoretical explanation of an enduring puzzle: trading volumes and stock return volatility peak after the release of public information. Using a comprehensive data set of institutional holdings and earnings announcements, we find supporting evidence that the proportion of short-term investors is positively associated with post-announcement spikes in trading volume and return volatility. This finding survives in the identification test based on the annual reconstitutions of the Russell 1000 and 2000 indices. We show our results largely withstand several alternative explanations related to the constitution of institutional investors, informed trading, and heterogeneous beliefs.

The Effect of Institutional Ownership on Innovation: New Evidence

We follow Bushee (2001) and classify institutional investors into long-term and short-term investors. We find that that long-term institutional ownership is positively associated with innovative quality. However, we do not find such an association for short-term owners. Our results suggest that long investment horizons give institutional holders incentives to engage in monitoring activities and improve the subsequent performance in innovation. We also find that when firms have less growth potential, more years in operation, or financial constraints, long-term institutional owners are positively associated with innovative quality, suggesting that long-term investors exert a monitoring effort when direct monitoring becomes more important.

An Empirical Study of Determinants of Investors’ Behaviour in Stock Market

This study aims to identify the effect of factors affecting investor choice in Indian Stock Market. The sample size was 200 for balancing the gender and income effect. Reliability test was used to evaluate reliability of scale. Internal consistency test was applied to check the consistency of the questionnaire. Factor Analysis was applied to identify the underlying factor of variables used in study. Exploratory Factor Analysis was applied to check the sampling adequacy. MANOVA analysis of variance was applied to check the relationship between variable investment choices, gender along with Income. Tax constant and valuation, reporting on external and internal environment, expected events, psychological factors, financial statements and time factor, stock value and dividends, institutional holdings, recommendation of the financial community, diversification and ethical issues, international operations, current economic indicators are the factors elicited from factor analysis. MANOVA result confirms that age has significant impact on reporting on external and internal environment and financial statements and time factor and income group has significant impact on expected events.