Institutional Ownership, Analyst Following, and Share Prices

51 Pages Posted: 23 Feb 2010 Last revised: 3 Jul 2012

See all articles by Chitru S. Fernando

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business

Vladimir A. Gatchev

University of Central Florida - Department of Finance

Paul A. Spindt

Tulane University - A.B. Freeman School of Business

Date Written: July 1, 2012

Abstract

We study the mutual relationships between institutional ownership, analyst following and share prices. We show that the pressure on firms to set lower share prices to attract analysts is attenuated by institutional monitoring. Our theory refutes the assumed causal relation between share price and institutional ownership, attributed to the share price-liquidity relation, and we show empirically that share prices and institutional ownership are positively related after controlling for liquidity. Our study provides a rationale for why better firms generally maintain higher share price levels, and offers new insights into the puzzling empirical linkages observed between nominal share price levels and firm fundamentals.

Keywords: Institutional ownership, monitoring, analysts, financial intermediation, share price level, firm value

JEL Classification: C24, G12, G30

Suggested Citation

Fernando, Chitru S. and Gatchev, Vladimir A. and Spindt, Paul A., Institutional Ownership, Analyst Following, and Share Prices (July 1, 2012). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1557174 or http://dx.doi.org/10.2139/ssrn.1557174

Chitru S. Fernando (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

Adams Hall
307 West Brooks Street
Norman, OK 73019-4004
United States
405-325-2906 (Phone)
405-325-7688 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/F/Chitru.Fernando-1/

Vladimir A. Gatchev

University of Central Florida - Department of Finance ( email )

Orlando, FL 32816-1400
United States
(407) 823-3694 (Phone)
(407) 823-6676 (Fax)

HOME PAGE: http://www.bus.ucf.edu/vgatchev/

Paul A. Spindt

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States
504-865-5413 (Phone)

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