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The Valuation Effects of Equity Issues and the Level of Institutional Ownership: Evidence from Analysts' Earnings Forecasts

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  • Peter A. Brous
  • Omesh Kini

Abstract

This paper investigates whether the level of institutional ownership has any effect on the market reaction to announcements of a firm-level "event", namely the issuance of equity. Previous studies that have examined the association between some proxy for firm value (either Tobin's q or a measure of accounting profitability) and ownership structure have a problem with the direction of causality. For instance, a positive association between firm value and institutional ownership can either be interpreted as evidence of monitoring by institutions or that institutions tend to invest systematically in high-value firms. If we find any relation between the announcement effects of equity issues, and therefore firm value, and institutional ownership, the direction of causality has to run from institutional ownership to firm values not the other way around.

Suggested Citation

  • Peter A. Brous & Omesh Kini, 1994. "The Valuation Effects of Equity Issues and the Level of Institutional Ownership: Evidence from Analysts' Earnings Forecasts," Financial Management, Financial Management Association, vol. 23(1), Spring.
    • Handle: RePEc:fma:fmanag:brous94
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    Citations

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    Cited by:

    1. Suchard, Jo-Ann, 2005. "The use of stand alone warrants as unique capital raising instruments," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1095-1112, May.
    2. Bricker, Robert & Chandar, Nandini, 2000. "Where Berle and Means went wrong: a reassessment of capital market agency and financial reporting," Accounting, Organizations and Society, Elsevier, vol. 25(6), pages 529-554, August.
    3. Ching-Lung Chen & Chung-Yu Chen, 2018. "Do Weak Internal Controls Affect Institutional Ownership Decisions?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(03), pages 1-37, September.
    4. Bhuyan, Md Nazmul Hasan & Subedi, Meena & Akter, Maimuna, 2022. "CEO-friendly boards and seasoned equity offerings," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    5. Ranjitha Ajay & R. Madhumathi, 2015. "Institutional Ownership and Earnings Management in India," Indian Journal of Corporate Governance, , vol. 8(2), pages 119-136, December.
    6. Yensen Ni & Yulu Liao & Paoyu Huang, 2017. "Foreign Institutional Investors, Shareholding Change, and Corporate Governance," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(4), pages 764-775, April.
    7. Iatridis, George, 2010. "International Financial Reporting Standards and the quality of financial statement information," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 193-204, June.
    8. Mohsen Tavakoli Shandiz & Farzaneh Nassir Zadeh & Davood Askarany, 2022. "The Interactive Effect of Ownership Structure on the Relationship between Annual Board Report Readability and Stock Price Crash Risk," JRFM, MDPI, vol. 15(6), pages 1-17, June.
    9. Velury, Uma & Jenkins, David S., 2006. "Institutional ownership and the quality of earnings," Journal of Business Research, Elsevier, vol. 59(9), pages 1043-1051, September.
    10. Ting Luo & Zhiguo Xiao, 2015. "Selective Disclosure Associated with Institutional Investors: Evidence Based on Chinese Stock Market," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 515-542, November.
    11. Sanjiv Sabherwal & Stephen D. Smith, 1999. "Concentrated shareholdings and the number of outside analysts," FRB Atlanta Working Paper 99-7, Federal Reserve Bank of Atlanta.

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