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Do Neglected Firms Suffer from an Information Deficit?

Author

Listed:
  • Kenneth Yung
  • Hamid Rahman
  • Qian Sun

Abstract

We study the presence and distribution of private information in neglected firm stocks using a measure of private information first suggested by Roll (1988). Our results suggest that there is no shortage of information on neglected firms for investors and that this private information forms part of the decision set for managerial decisions. Our results indicate a significant negative correlation between the amount of private information and certain important firm characteristics such as market size, cash flow, sales and return on assets. When the impact of private information is analyzed on the investment and payout policies of the neglected firms, the results indicate that private information in stock price has a significant impact on firm investment but not on payout. However, private information does affect payout but through interaction with firm cash flow. Finally we find that private information impact on firm investment is stronger in smaller as compared to larger neglected firms.

Suggested Citation

  • Kenneth Yung & Hamid Rahman & Qian Sun, 2013. "Do Neglected Firms Suffer from an Information Deficit?," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(1), pages 31-44.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:1:p:31-44
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    References listed on IDEAS

    as
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    4. David H. Downs & Z. Nuray Güner, 2000. "Investment Analysis, Price Formation and Neglected Firms: Does Real Estate Make a Difference?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(4), pages 549-579.
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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