The effect of institutional ownership on firm transparency and information production

Audra L. Boone, Joshua T. White
2015 Journal of Financial Economics  
This paper provides evidence on the causal relationship of institutional ownership on a firm's information environment. Our analyses use the annual reconstitution of the Russell 1000 and 2000 indexes. The characteristics of firms near the Russell 1000/2000 threshold are similar, except that firms just included in the top of the Russell 2000 index have discontinuously higher institutional ownership, predominantly stemming from quasi-indexing institutions. We find that greater quasi-indexer
more » ... hip results in more public information dissemination, both from managers and analysts, and an improved information environment as evidenced by lower information asymmetry and higher liquidity. Overall, our paper demonstrates that demands for information by quasi-indexers positively affects firm transparency and information production, which can enhance monitoring and decrease trading costs for all investors.
doi:10.1016/j.jfineco.2015.05.008 fatcat:aynaimmmvrch3dlbo4so3xqfv4