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Institutional investor inattention and stock price crash risk

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  • Xiang, Cheng
  • Chen, Fengwen
  • Wang, Qian

Abstract

We find that firms suffer from larger future stock price crash risk if their institutional investors are more distracted by exogenous attention-grabbing events, and therefore are more inattentive to these firms. This effect is more pronounced for state-owned-enterprises, for firms whose CEOs chair the boards, and firms with less analyst coverage. Further tests show that this effect is mainly caused by the inattention of dedicated institutional investors and quasi-indexers but not by that of transient institutional investors, and is partially attributed to the finding that managers hoard more bad news through more earnings management when institutional investors are more inattentive.

Suggested Citation

  • Xiang, Cheng & Chen, Fengwen & Wang, Qian, 2020. "Institutional investor inattention and stock price crash risk," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319301084
    DOI: 10.1016/j.frl.2019.05.002
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    6. Ryan Flugum & Svetlana Orlova & Andrew Prevost & Li Sun, 2021. "Distracted institutions, information asymmetry and stock price stability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 2015-2048, October.
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    8. Ni, Xiaoran & Peng, Qiyuan & Yin, Sirui & Zhang, Ting, 2020. "Attention! Distracted institutional investors and stock price crash," Journal of Corporate Finance, Elsevier, vol. 64(C).
    9. Ziqin Yu & Xiang Xiao, 2022. "Innovation information disclosure and stock price crash risk‐based supervision and insurance effect path analysis," Australian Economic Papers, Wiley Blackwell, vol. 61(3), pages 534-590, September.
    10. Li, Fangzhou & Jiang, Yuxiang, 2022. "Institutional investor networks and crash risk: Evidence from China," Finance Research Letters, Elsevier, vol. 47(PA).
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