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Institutional ownership, analyst following, and share prices

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  • Fernando, Chitru S.
  • Gatchev, Vladimir A.
  • Spindt, Paul A.
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    Abstract

    We study the mutual relationships between institutional ownership, analyst following and share prices. We show that the pressure on firms to set lower share prices to attract analysts is attenuated by institutional monitoring. Our theory refutes the assumed causal relation between share price and institutional ownership, attributed to the share price–liquidity relation, and we show empirically that share prices and institutional ownership are positively related after controlling for liquidity. Our study provides a rationale for why better firms generally maintain higher share price levels, and offers new insights into the puzzling empirical linkages observed between nominal share price levels and firm fundamentals.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 8 ()
    Pages: 2175-2189

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2175-2189

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Institutional ownership; Monitoring; Analysts; Financial intermediation; Share price level; Firm value;

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