Attention! Distracted Institutional Investors and Stock Price Crash

50 Pages Posted: 15 Nov 2019 Last revised: 4 Aug 2020

See all articles by Xiaoran Ni

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE); Xiamen University - School of Economics

Qiyuan Peng

University of Dayton - School of Business Administration

David Yin

Miami University of Ohio

Ting Zhang

University of Dayton - School of Business Administration

Date Written: November 1, 2019

Abstract

Using the extreme returns of firms in unrelated industries of institutional shareholders’ portfolios as exogenous variations in institutional investor distraction (Kempf et al., 2017), we find a positive and significant relation between institutional shareholder distraction and stock price crash risk. The effect is associated with weakened monitoring, and it becomes stronger when alternative corporate governance is weaker and when managers’ incentives to hoard bad information are stronger. Managers reduce firms’ accounting conservatism when institutional investors become distracted, which is evidence of an increased motivation to hoard bad news. Overall, our findings shed additional light on the important monitoring role of institutional investors in corporate governance.

Keywords: Shareholder distraction, Crash risk, Corporate governance, Monitoring

Suggested Citation

Ni, Xiaoran and Peng, Qiyuan and Yin, David and Zhang, Ting, Attention! Distracted Institutional Investors and Stock Price Crash (November 1, 2019). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3482098 or http://dx.doi.org/10.2139/ssrn.3482098

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

D 204, Economics Building
Xiamen, Fujian 361005
China

Xiamen University - School of Economics ( email )

China

Qiyuan Peng

University of Dayton - School of Business Administration ( email )

Dayton, OH 45469
United States

David Yin

Miami University of Ohio ( email )

Oxford, OH 45056
United States

Ting Zhang (Contact Author)

University of Dayton - School of Business Administration ( email )

300 College Park
Dayton, OH 45469
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
103
Abstract Views
605
rank
309,433
PlumX Metrics