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Information advantages of large institutional owners

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  • Karen Schnatterly
  • Kenneth W. Shaw
  • William W. Jennings

Abstract

We study the relation between the percentage of outstanding shares held by a firm's largest institutional owner and the bid–ask spread on that firm's shares, a measure of information risk. We find that the greater the percentage of shares held by the largest institutional investor, the greater the bid–ask spread in share prices. In contrast, the percentage of shares held by smaller institutional owners is related to lower bid–ask spreads. The results imply that only the largest of a firm's institutional owners—and no other institutional owner—is perceived to hold an information advantage. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Karen Schnatterly & Kenneth W. Shaw & William W. Jennings, 2008. "Information advantages of large institutional owners," Strategic Management Journal, Wiley Blackwell, vol. 29(2), pages 219-227, February.
  • Handle: RePEc:bla:stratm:v:29:y:2008:i:2:p:219-227
    DOI: 10.1002/smj.654
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    Cited by:

    1. Hearn, Bruce, 2021. "Institutional determinants of bid–ask spreads in Caribbean offshore stock exchanges," Research in International Business and Finance, Elsevier, vol. 58(C).
    2. Die Wu & Hafeezullah Memon, 2022. "Public Pressure, Environmental Policy Uncertainty, and Enterprises’ Environmental Information Disclosure," Sustainability, MDPI, vol. 14(12), pages 1-18, June.
    3. Wunhong Su & Chunlin Wang & Zhong‐qin Su, 2024. "Association between foreign background of executives and firm goodwill impairment risk," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 223-250, January.
    4. Asma Fattoum-Guedri & Zied Guedri & Frédéric Delmar, 2018. "Multiple Blockholder Structures and Family Firm Performance," Entrepreneurship Theory and Practice, , vol. 42(2), pages 231-251, March.
    5. Abdalla Shwairef & Azlan Amran & Mohammad Iranmanesh & Noor Hazlina Ahmad, 2021. "The mediating effect of strategic posture on corporate governance and environmental reporting," Review of Managerial Science, Springer, vol. 15(2), pages 349-378, February.
    6. Ahmed A. Sarhan & Basil Al‐Najjar, 2023. "The influence of corporate governance and shareholding structure on corporate social responsibility: The key role of executive compensation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4532-4556, October.
    7. Hearn, Bruce & Oxelheim, Lars & Randøy, Trond, 2021. "The Impact of Founders on Information Asymmetry vis-à-vis Outside Investors: Evidence from Caribbean Offshore Tax Havens," Working Paper Series 1419, Research Institute of Industrial Economics.
    8. Won Oh & Young Chang & Aleksey Martynov, 2011. "The Effect of Ownership Structure on Corporate Social Responsibility: Empirical Evidence from Korea," Journal of Business Ethics, Springer, vol. 104(2), pages 283-297, December.
    9. Baoyin Qiu & Bo Cheng & Hangeng Qiu & Kam C. Chan, 2022. "Do firms with foreign residency rights controlling shareholders reduce R&D investment?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1403-1422, July.
    10. Ping Wei & Xiaodan Mao & Xiaohong Chen, 2020. "Institutional investors' attention to environmental information, trading strategies, and market impacts: Evidence from China," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 566-591, February.
    11. Chen, Yangyang & Li, Qingyuan & Ng, Jeffrey & Wang, Chong, 2021. "Corporate financing of investment opportunities in a world of institutional cross-ownership," Journal of Corporate Finance, Elsevier, vol. 69(C).
    12. Won-Yong Oh & Jongseok Cha & Young Kyun Chang, 2017. "Does Ownership Structure Matter? The Effects of Insider and Institutional Ownership on Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 146(1), pages 111-124, November.
    13. Alfredo De Massis & Josip Kotlar & Pietro Mazzola & Tommaso Minola & Salvatore Sciascia, 2018. "Conflicting Selves: Family Owners' Multiple Goals and Self-Control Agency Problems in Private Firms," Entrepreneurship Theory and Practice, , vol. 42(3), pages 362-389, May.
    14. Ali Meftah Gerged, 2021. "Factors affecting corporate environmental disclosure in emerging markets: The role of corporate governance structures," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 609-629, January.
    15. Hadani, Michael, 2012. "Institutional ownership monitoring and corporate political activity: Governance implications," Journal of Business Research, Elsevier, vol. 65(7), pages 944-950.
    16. Maureen Muller-Kahle, 2015. "The impact of dominant ownership: the case of Anglo-American firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 71-89, February.
    17. Chung, Chune Young & Kim, Hyeik & Wang, Kainan, 2022. "Do domestic or foreign institutional investors matter? The case of firm information asymmetry in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    18. Jennifer Martínez-Ferrero & María-Belén Lozano, 2021. "The Nonlinear Relation between Institutional Ownership and Environmental, Social and Governance Performance in Emerging Countries," Sustainability, MDPI, vol. 13(3), pages 1-16, February.
    19. Hang Nguyen & Roger Calantone & Ranjani Krishnan, 2020. "Influence of Social Media Emotional Word of Mouth on Institutional Investors’ Decisions and Firm Value," Management Science, INFORMS, vol. 66(2), pages 887-910, February.
    20. Zhu, Hongbing & Yang, Lihua & Xu, Changxin, 2023. "Tracking investor gambling intensity," International Review of Financial Analysis, Elsevier, vol. 86(C).
    21. J. Adam Cobb, 2015. "Risky Business: The Decline of Defined Benefit Pensions and Firms’ Shifting of Risk," Organization Science, INFORMS, vol. 26(5), pages 1332-1350, October.
    22. Kwon, Sewon & Ahn, Jae Hwan & Kim, Gi H., 2021. "The impact of shareholder intervention on overinvestment of free cash flow by overconfident CEOs," International Review of Financial Analysis, Elsevier, vol. 75(C).
    23. Hadani, Michael & Goranova, Maria & Khan, Raihan, 2011. "Institutional investors, shareholder activism, and earnings management," Journal of Business Research, Elsevier, vol. 64(12), pages 1352-1360.
    24. Amin, Abu S. & Dutta, Shantanu & Saadi, Samir & Vora, Premal P., 2015. "Institutional shareholding and information content of dividend surprises: Re-examining the dynamics in dividend-reappearance era," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 152-170.
    25. Hennig, Jan C. & Oehmichen, Jana & Steinberg, Philip J. & Heigermoser, Judith, 2022. "Determinants of common ownership: Exploring an information-based and a competition-based perspective in a global context," Journal of Business Research, Elsevier, vol. 144(C), pages 690-702.

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