Does it Pay to Communicate with Firms? Evidence from Firm Site Visits of Mutual Funds
Journal of Business Finance & Accounting, Forthcoming
56 Pages Posted: 27 Dec 2016 Last revised: 6 Mar 2017
Date Written: December 1, 2016
By using a unique dataset on mutual fund visits to listed firms in China, we investigate whether mutual funds are able to obtain private information or benefit from their communication with firms. Our findings are as follows: 1) such communication significantly increases the subsequent trading magnitude of mutual funds; 2) mutual fund trades that rely on communication significantly predict the unexpected earnings of visited firms, which is further supported by IV-regressions that use the number of direct flights between two cities as the instrument of communication; and 3) comprehensiveness of communication topics and firms’ information environment significantly affect the benefits that mutual funds obtain from communication. Our results are robust to alternative measures and specifications, and provide insights for regulators who are concerned with fair disclosure.
Keywords: Communication, Mutual Fund, Information Advantage, Site Visits
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation