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Distracted passive institutional shareholders and firm transparency

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  • Xue, Xiaolin
  • Zhang, Junrui
  • Yu, Yangxin

Abstract

This study investigates whether distracted passive institutional shareholders influence firm transparency. To capture distraction, we exploit industry shocks that happen to partial stocks of investor portfolios and shift investor attention away from unrelated stocks. Consistent with a reduction in monitoring intensity, we find that firms with distracted passive institutional shareholders are associated with less transparent information environments, and this effect is more pronounced for firms with more concentrated passive institutional ownership. Further results show that the negative association between passive institutional shareholder distraction and firm transparency is more pronounced for firms in competitive industries and for firms with new CEOs, suggesting that the lessening of monitoring intensity leads to a greater decrease in firm transparency when managers have more incentives to make firms opaque. This study contributes to showing the consequences of investor limited attention on corporate actions and providing evidence to support the monitoring effect of passive institutional shareholders.

Suggested Citation

  • Xue, Xiaolin & Zhang, Junrui & Yu, Yangxin, 2020. "Distracted passive institutional shareholders and firm transparency," Journal of Business Research, Elsevier, vol. 110(C), pages 347-359.
    • Handle: RePEc:eee:jbrese:v:110:y:2020:i:c:p:347-359
    DOI: 10.1016/j.jbusres.2020.01.033
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    More about this item

    Keywords

    Investor limited attention; Institutional investors; Passive funds; Firm transparency; Information asymmetry;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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