Disclosure Quality, Institutional Investors, and Stock Return Volatility

41 Pages Posted: 2 Feb 1999

See all articles by Brian J. Bushee

Brian J. Bushee

University of Pennsylvania - The Wharton School

Christopher F. Noe

Massachusetts Institute of Technology - Sloan School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 1999

Abstract

This paper investigates whether the quality of a firm's disclosure practices affects the composition of a firm's institutional investor base and whether this association has implications for a firm's stock return volatility. The findings indicate that firms with higher disclosure quality, as measured by AIMR rankings, have greater institutional ownership, but the particular types of institutional investors that are attracted to disclosure quality tend to have no net impact on firms' stock return volatility. In contrast, improvements in disclosure quality are shown to produce contemporaneous increases in ownership primarily by transient-type institutions. Such institutions can be characterized as having a short-term investment focus along with a propensity to trade aggressively. The findings indicate that firms with disclosure quality improvements resulting in higher transient institutional investor ownership experience subsequent increases in stock return volatility.

JEL Classification: M41, G12, G23

Suggested Citation

Bushee, Brian J. and Noe, Christopher F., Disclosure Quality, Institutional Investors, and Stock Return Volatility (October 1999). Available at SSRN: https://ssrn.com/abstract=146434 or http://dx.doi.org/10.2139/ssrn.146434

Brian J. Bushee (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-4872 (Phone)
215-573-2054 (Fax)

Christopher F. Noe

Massachusetts Institute of Technology - Sloan School of Management ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

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