Institutional Ownership, Information Advantage And Stock Market Reaction

Institutional investors are important participation group in capital market and they exert a positive role in pricing ex ante and supervising ex post based on their economies of scale and long-term, rational investment, which will consummate the economical function of security market finally. In Chinese transitional economies, institutional investors have expanded greatly with the development of capital market. But there are negative effects in the development process of institutional investors at the same time, which make people produce some questions to the role of institutional investors and the reasonableness of specific policies developing institutional investors. This dissertation both theoretically and empirically analyzes and examines the characteristics of institutional ownership, information advantage and stock market reaction by combining normative and empirical research methods. The major results are as follows:1. It is necessary and possible for institutional investors to collect information and have information advantage in capital market. Whether you can invest effectively depends on ability to absorb and process information. Financial report can be regarded as an important channel to acquire information. But because of some reasons, such as the conflicts between corporate management and the outside shareholders, the imperfect of financial report standards, and corporate management's information advantage, the information that investors obtain from financial report is insufficient for them to make investment decision. So it is necessary for investors to collect more information relevant to investment decision exclusively. Economies of scale and scope, intimate communication with corporate management, the less cognition bias make institutional investors have much incentive to collect information, which leads institutional investors have some information advantages relatively.2. Corporate characteristics information (mainly including accounting information and marketing manifestation information) plays an absolutely important role during the process of institutional investors'decisions. The author also finds that a significant linear relationship existing between institutional ownership and the size, debt to asset ratio, profit capability, listing age, stock price and stock market return, which implies that institutional investors have paid much attention to the fundamental information of listed companies in China with the development and standardization of securities market. The decisions of institutional investors look reasonable and scientific relatively.3. Compared to corporate characteristics information, corporate governance information(mainly measured by legal environment, government intervention, marketization degree and ownership structure)doesn't play an important role during the process of institutional investors'decisions. Some external corporate governance environment including better legal environment and higher marketization degree attracts an institutional investor holding. And a significant"U-shaped"relationship is found between institutional ownership and the first large shareholder's ownership, which proves that institutional investors take account of entrenchment effects and alignment because of the first large shareholder's ownership.4. Institutional investors have some information advantages of accounting earnings. And the institutional ownership variable is positively correlated with the observed abnormal returns before earnings announcements, but abnormal returns have a reversion after earnings announcements. The higher institutional ownership in a company tends to reduce the magnitude of market reaction around earnings announcements. Meanwhile, the extent to which stock prices reflect future earnings is positively related to the percentage of institutional ownership. That is, institutional ownership accelerates the pricing of future earnings, which indicates they take account of the companies'future information when institutional investors make decisions in China.It is expected that this dissertation will make the following contributions:1. This dissertation analyzes the effects of different kinds of information(for example, accounting information, marketing manifestation information and corporate governance information)on institutional ownership during the process of institutional investors'investment decisions systematically with classification method for the first time. It also analyzes the reasonableness of institutional investors'decision-making process from time series aspect. All these studies provide evidences to evaluate the behavior of institutional investors'investment decisions.2. This dissertation tests the manifestation of institutional investors'information advantage based on accounting earnings information content, and examines the impact of institutional ownership on the extent to which stock prices reflect future earnings for the first time. It provides directly empirical evidences to analyze the importance and role of institutional investors in China.