Institutional ownership structure and firm-specific information : a cross-sectional and trend analysis

Pao Yue-kong Library Electronic Theses Database

Institutional ownership structure and firm-specific information : a cross-sectional and trend analysis


Author: Ngai, Ying Chu
Title: Institutional ownership structure and firm-specific information : a cross-sectional and trend analysis
Degree: Ph.D.
Year: 2015
Subject: Stock ownership -- United States.
Institutional investments -- United States.
Stocks -- Prices -- United States.
Hong Kong Polytechnic University -- Dissertations
Department: School of Accounting and Finance
Pages: x, 96 leaves ; 30 cm
Language: English
InnoPac Record:
Abstract: This thesis investigates the effects of ownership distribution across institutional investors on the information environment of U.S. listed stocks in cross-sections and over time. I hypothesize and show that the concentration of shareholdings by an institutional investor and multiple large institutional owners has non-linear impacts on the capitalization of firm-specific information into share prices. The three main findings in this study strongly support the proposition that institutional ownership structure is an important determinant of the firm's information environment in cross-sections and through time. First, I find a concave relation between firm-specific information and institutional ownership concentration: as concentration increases, firm-level information increases at a declining rate until it reaches the maximum level, consistent with the interplay of effective monitoring and monopolistic trading hypotheses. Second, I show that firm-specific information is a cubic function of concentration by multiple large institutional owners: when concentration rises, firm-level information decreases initially, but it reverses direction and goes up, until it reaches the peak level, supporting the theoretical predictions of the free-rider problem and the competitive disciplinary trading effect in a multiple large shareholder structure. Finally, my time-series analyses unfold a downward trend in both institutional ownership concentration and firm-specific information during the period from 1980 to 2010. My trend analyses indicate that institutional ownership concentration and firm-specific information are positively related across time and that the downward trend in firm-specific information is accounted for by the downward trend in institutional ownership concentration. These empirical findings are robust to multiple variable measures and alternative models including panel and cross-sectional regressions based on lagged concentration variables, firm fixed effects, as well as changes in concentration and subsequent changes in firm-specific information. This study contributes to the literature by enhancing our understanding of large institutional owners’ influence on the pricing of firm-level information. My findings highlight the importance of considering the non-monotonic incentives of a large institutional investor, the interaction among multiple large owners in a firm, as well as the evolving nature of institutional ownership structure over time in assessing large shareholders’ impact on the firm’s information environment in future research.

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