A Study Of The Economic Consequences Of Distracted Institutional Investors

Compared with other investors,institutional investors,as important subjects in the capital market,are more professional,have stronger supervision and governance motivation,and are more likely to influence corporate policy making(Bhagat and Black,2004;Li Wei’an and Li Bin,2008).However,due to the limitations of cognition and time,investors’ attention and information processing ability are limited and it is impossible to comprehensively analyze and digest market information.They tend to make behavioral adjustments based on the information that attracts their attention(Lin et al.,2007).In supervising the activities of portfolio companies,the occurrence of external extreme events will also occupy the limited energy and attention of institutional investors,thus affecting their investment decisions and the behavior of the company.Kempf(2017),such as the empirical evidence based on the capital market,using the shareholder investment portfolio is not an external shocks,extreme related industry gains the study found that when certain of the shareholder of the company held by independent industry face the impact,will prompt it to shift attention away from the company to the affected by the impact of the portfolio,This "distraction" leads to a temporary relaxation of regulatory constraints on public companies,making them more likely to announce damaging acquisitions and lower returns on their shares.Later,Liu et al.(2020)further confirmed that distracted institutional investors weakened board supervision and made them less likely to punish ineffective directors with negative votes.However,in Chinese capital market,the research on the economic consequences of distracted institutional investors still needs to be further empirically tested.Based on this,reference Liu(2020)study,this paper discusses the investment portfolio of institutional investors not related industries of extreme income will cause their attention distribution differences,resulting in distracted institutional investors,this may be leading to the controlling shareholders self-interest behavior,corporate R&D manipulation and c orporate lever manipulation.The research finds that,first,the distracted institutional investors reduce their attention to the listed companies,reduces the information content of the company’s stock price,and makes the phenomenon of the controlling shareholders of the company more serious.This also makes it possible for controlling shareholders and managers to make private interests,thus bringing significant negative impact on the future market performance of the enterprise.In addition,the greater the shareholding proportion of institutional investors,the greater the weight of market value of institutional investors,and the better the information environment and legal environment,the more conducive to restrain the aggravation of the distracted institutional investors on controlling shareholders’private interests.Second,the distracted institutional investors weaken the supervision and governance mechanism,reduce the information collection of listed companies,and reduce the information content of company stock price according to the transaction,making enterprises more likely to take the opportunity to conduct R&D manipulation in order to seek lower tax costs and more government subsidies.In fact,such manipulation is not conducive to enterprise innovation,resulting in lower R&D performance and market performance;In addition,the larger the shareholding ratio and the greater the weight of shareholding market value of institutional investors,the more conducive to restrain the aggravating effect of distracted institutional investors on enterprise R&D manipulation.Thirdly,the distracted institutional investors further aggravate the phenomenon of corporate leverage manipulation by weakening its supervision and governance effect and reducing the information content of company stock price,so that enterprises can hide the real leverage level.Thus,misleading creditors to lower the cost of capital to lend funds,but also for the enterprise’s future hidden trouble,resulting in potential debt default risk and financial risk increase.The higher the leverage ratio of enterprises and the greater the external market pressure,the more difficult it is for enterprises to obtain credit financing,thus increasing the motivation of enterprises to implement leverage manipulation,and enhancing the aggravating effect of the distracted institutional investors on corporate leverage manipulation.Some contributions there may be in this article:First,the study of this paper helps expand the economic consequences of expanding the difference between the agency investors’attention.Previous studies failed to effectively distinguish between institutional investors’ attention to the supervision intensity of listed companies,this article bases on the latest study of Liu et al.(2020),using the extreme benefits of the unrelated industries in the institutional portfolio as a foreign shock,investigating the impact of the attention distribution on the listed companies,thereby providing new evidence for the economic consequences of the distracted institutional investors.Second,the study of this paper helps to enrich the influencing factors of private interests of controlling shareholders.Existing research has discussed independent director network,media supervision,relaxing selling space system,executive equity incentives and other factors on controlling shareholders’ private interests,but fresh scholars pay attention to institutional investors’ attention to their investment portfolios The effects of different distraction levels on the protection of private interests in the controlling shareholders.Third,the study of this paper helps to enrich the literature of the influencing factors of enterprises.Existing research has explored independent directors,tax reduction,and financing constraints on the influence of corporate research and development.However,few scholars have paid attention to the influence of different degree of "distraction" caused by the institutional investors to their portfolio companies on corporate R&D manipulation.Fourth,the study of this paper helps enrich the literature of enterprise leveraged factors.The existing research mainly explores the use of various unconventional means to adjust the asset-liability project by indirectly,to achieve the effect of the lever of the purge.This paper refers to the method of Xu Xiaofang et al.(2020a)to measure leverage manipulation and investigate the influence of the degree of "distraction" of institutional investors on corporate leverage manipulation,which is helpful to expand the research on the influencing factors of leverage manipulation.Fifth,this paper uses the unique data of the Chinese agency investor,with a means of identifying supervision outside the institutional investor,and verifies that it has a measured and economic important impact on listed companies,providing new empirical evidence from Chinese capital market.