Evidence from impending bankrupt firms that long horizon institutional investors are informed about future firm value

Evidence from impending bankrupt firms that long horizon institutional investors are informed... A key assumption in many accounting and finance studies is that long horizon institutional investors are informed shareholders. Yet past empirical research finds no evidence that these institutions anticipate major corporate events, including earnings-based events. I find that long horizon institutions are better informed in that they sell more shares of impending bankrupt firms than of matched distress firms at least one quarter ahead of bankruptcy. Share sales are greater in impending bankrupt firms whose shareholders ultimately lose all of their equity. In additional analyses, I document greater share sales by long horizon institutions with supposedly superior information processing abilities and/or access to corporate management. Share sales are significantly less in the post Regulation FD era. Overall, my findings support the validity of the common assumption that long horizon institutions are informed. Regulation FD appears to mitigate (but not eliminate) their information advantage. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Evidence from impending bankrupt firms that long horizon institutional investors are informed about future firm value

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-013-9271-6
Publisher site
See Article on Publisher Site

Abstract

A key assumption in many accounting and finance studies is that long horizon institutional investors are informed shareholders. Yet past empirical research finds no evidence that these institutions anticipate major corporate events, including earnings-based events. I find that long horizon institutions are better informed in that they sell more shares of impending bankrupt firms than of matched distress firms at least one quarter ahead of bankruptcy. Share sales are greater in impending bankrupt firms whose shareholders ultimately lose all of their equity. In additional analyses, I document greater share sales by long horizon institutions with supposedly superior information processing abilities and/or access to corporate management. Share sales are significantly less in the post Regulation FD era. Overall, my findings support the validity of the common assumption that long horizon institutions are informed. Regulation FD appears to mitigate (but not eliminate) their information advantage.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jan 4, 2014

References

  • Do institutional investors prefer near-term earnings over long-run value?
    Bushee, B
  • Which institutional investors trade based on private information about earnings and returns?
    Bushee, B; Goodman, T
  • Conference presentations and the disclosure Milieu
    Bushee, B; Jung, M; Miller, G
  • The behavior of common stock of bankrupt firms
    Clark, TA; Weinstein, W

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