Institutional Investors and Information Asymmetry: An Event Study of Self‐Tender Offers

Abstract

Our research compares the asymmetric information costs of firms with low levels of institutional ownership to those with high levels. We use self-tender offers as an information event. Our results show that higher institutional ownership, particularly a higher number of institutional investors, is associated with a lower degree of informed trading. These results persist even after we control for differences in trading activity among our sample firms.

Governance Quality and Information Alignment

“…8 Thus, the effect of block ownership in the UK capital market should be consistent with the model proposed by O'Neill and Swisher (2003). Therefore, we anticipate that the higher the ratio of block ownership, the larger the degree of asymmetric information.…”

“…Shleifer and Vishny (1997), Perotti and Thadden (2003), Pawlina and Renneboog (2005) and Florackis and Ozkan (2009) find that large shareholders can reduce asymmetric information and improve long-term performance. In contrast, Heflin and Shaw (2000), O'Neill and Swisher (2003) and Fehle (2004) find that greater institutional ownership is associated with greater information asymmetry, as there is a lower degree of informed trading.…”

“…Heflin and Shaw (2000) and O'Neill and Swisher (2003) suggest that greater institutional ownership can cause an increase in adverse selection costs. Dong and Ozkan (2008) note the increasing importance of institutional investors in UK companies, finding that 80% of shares outstanding are held by financial institutions.…”

STOCK MARKET VALUATIONS OF R&D AND ELECTRONICS FIRMS DURING TAIWAN'S RECENT ECONOMIC TRANSITION

“…Hence, improved disclosure about firms' R&D operations, such as the capitalization of development costs when products successfully pass technological feasibility tests, the timely release of information about planned changes in R&D expenditures, and the disclosure of pre-trading information by insiders might mitigate the R&D-related information asymmetry (Aboody and Lev 2000). The continuing market openness to (foreign) institutional investors, believed to have an information advantage (Grinblatt and Keloharju 2000;Froot, O'Connell, and Seasholes 2001) over individual investors, could also reduce the information asymmetry between insiders and uninformed investors (O'Neill and Swisher 2003).…”

Order submission behaviors and opening price behaviors: evidence from an emerging market

“…If they are better informed, as observed by O'Neill and Swisher (2003), Wermers (1999), and Chakravarty (2001), the stocks they purchase should outperform those they sell. As expected, professional institutions in Taiwan demonstrate superior short-term performances to individuals (Chiao and Lin 2004;Chiao et al 2006).…”