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Institutional Investors, Stock Repurchases and Information Asymmetry

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  • Ricky W. Scott

Abstract

This paper seeks to determine if institutional investors influence stock repurchases. Specifically, this study tests whether institutional investors encourage stock repurchases in firms with high information asymmetry. Firm and year fixed effect regressions examining the effect of changes in institutional investor levels to subsequent changes in stock repurchase levels are used. For robustness, regressions are run using difference-GMM regressions and regressions for different time periods on the same relationship. I find that increased institutional ownership leads to increased stock repurchases and this relationship is stronger in firms with higher information asymmetry. Results indicate that institutional investors encourage management to increase repurchases so as to exploit their informational advantage over less informed investors about the true value of the firm. Institutions are the dominant force in U.S. stock ownership. The results in this paper indicate that institutional investors are using their informational advantage in firms that are difficult to value in an attempt to boost their return at the expense of other less informed shareholders.

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  • Ricky W. Scott, 2014. "Institutional Investors, Stock Repurchases and Information Asymmetry," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 39-51, October.
    • Handle: RePEc:jfr:ijfr11:v:5:y:2014:i:4:p:39-51
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    Cited by:

    1. Pierre Durand, 2018. "Impact du financement par fonds de pension sur la performance des entreprises du CAC 40," EconomiX Working Papers 2018-4, University of Paris Nanterre, EconomiX.
    2. Pierre Durand, 2018. "Impact du financement par fonds de pension sur la performance des entreprises du CAC 40 ?," Working Papers hal-04141801, HAL.

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