Institutional ownership, peer pressure and voluntary disclosures

Yupeng LIN; Ying MAO; Zheng WANG

doi:10.2308/accr-51945

Institutional ownership, peer pressure and voluntary disclosures

Yupeng LIN, Ying MAO, Zheng WANG

Lingnan University

Research output: Journal Publications › Journal Article (refereed) › peer-review

67 Citations (Scopus)

Abstract

We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely-neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital.

Original language	English
Pages (from-to)	283-308
Number of pages	26
Journal	The Accounting Review
Volume	93
Issue number	4
Early online date	23 Oct 2017
DOIs	https://doi.org/10.2308/accr-51945
Publication status	Published - Jul 2018

Bibliographical note

We appreciate helpful comments from Anne Beatty (editor), two anonymous reviewers, Bin Ke, Xu Han, Oliver Zhen Li, Haibin Wu, Zhifeng Yang, Liandong Zhang, seminar participants at the Huazhong University of Science and Technology, and colleagues at the City University of Hong Kong and the National University of Singapore. We thank the Russell Investment Corporation for providing the Russell Index data.

Funding

We gratefully acknowledge the financial support of the City University of Hong Kong and the National University of Singapore. Yupeng Lin also acknowledges financial support from the National Natural Science Foundation of China (Grant Number 71772110).

Keywords

Institutional ownership
Peer effect
Russell Index
Voluntary disclosures

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10.2308/accr-51945

Cite this

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title = "Institutional ownership, peer pressure and voluntary disclosures",

abstract = "We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely-neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital.",

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note = "We appreciate helpful comments from Anne Beatty (editor), two anonymous reviewers, Bin Ke, Xu Han, Oliver Zhen Li, Haibin Wu, Zhifeng Yang, Liandong Zhang, seminar participants at the Huazhong University of Science and Technology, and colleagues at the City University of Hong Kong and the National University of Singapore. We thank the Russell Investment Corporation for providing the Russell Index data.",

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pages = "283--308",

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AU - MAO, Ying

AU - WANG, Zheng

N1 - We appreciate helpful comments from Anne Beatty (editor), two anonymous reviewers, Bin Ke, Xu Han, Oliver Zhen Li, Haibin Wu, Zhifeng Yang, Liandong Zhang, seminar participants at the Huazhong University of Science and Technology, and colleagues at the City University of Hong Kong and the National University of Singapore. We thank the Russell Investment Corporation for providing the Russell Index data.

PY - 2018/7

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N2 - We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely-neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital.

AB - We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely-neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital.

KW - Institutional ownership

KW - Peer effect

KW - Russell Index

KW - Voluntary disclosures

UR - http://commons.ln.edu.hk/sw_master/6058

UR - http://www.scopus.com/inward/record.url?scp=85051439096&partnerID=8YFLogxK

U2 - 10.2308/accr-51945

DO - 10.2308/accr-51945

M3 - Journal Article (refereed)

SN - 0001-4826

VL - 93

SP - 283

EP - 308

JO - The Accounting Review

JF - The Accounting Review

IS - 4

ER -

Institutional ownership, peer pressure and voluntary disclosures

Abstract

Bibliographical note

Funding

Keywords

Access to Document

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Cite this