Financial Reporting Opacity and Informed Trading by International Institutional Investors
44 Pages Posted: 13 Mar 2011 Last revised: 19 Aug 2016
Date Written: July 30, 2012
Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firm- and country-level measures of the availability of financial reporting information, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country-level disclosure infrastructures are less developed and for those investors for whom the incentives and opportunities to acquire private information are greatest. A difference-in-differences analysis of the returns earned by institutions in opaque stocks suggests that this information advantage is economically significant.
Keywords: Transparency, Informed Trading, Institutional Investors, International Accounting
JEL Classification: G15, G30, M41
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