Does Limited Attention Constrain Investors’ Acquisition of Firm‐Specific Information?

32 Pages Posted: 24 Dec 2014

See all articles by Yi Dong

Yi Dong

Shanghai University of Finance and Economics

Chenkai Ni

Fudan University

Date Written: November/December 2014

Abstract

According to the framework outlined in Peng and Xiong ([Peng, L., 2006]), attention‐constrained investors tend to process more market‐ and sector‐level information. We empirically test this theory. We find that firms with higher media coverage have lower contemporaneous stock return synchronicity. Such an effect is robust to analyses within size deciles, inclusion of firm fixed effects, estimation using a matched sample, and a two‐stage least squares approach. The effect becomes less pronounced during the financial crisis period when both the quantity and quality of firm‐specific information decrease. Further, the attention from media coverage has a spillover effect on the firm's industry peers without media coverage. Finally, investors of firms with higher media coverage are more efficient in incorporating future firm performance into current stock prices. Collectively, our findings support the theory in Peng and Xiong ([Peng, L., 2006]) that investors increase their acquisition of firm‐specific information when a firm captures their attention.

Keywords: mass media, limited attention, stock return synchronicity, information acquisition

Suggested Citation

Dong, Yi and Ni, Chenkai, Does Limited Attention Constrain Investors’ Acquisition of Firm‐Specific Information? (November/December 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 9-10, pp. 1361-1392, 2014, Available at SSRN: https://ssrn.com/abstract=2542435 or http://dx.doi.org/10.1111/jbfa.12098

Yi Dong (Contact Author)

Shanghai University of Finance and Economics ( email )

Shanghai, Shanghai 200433
China

Chenkai Ni

Fudan University ( email )

Guoshun Road 670
Yangpu
Shanghai, Shanghai 200433
China

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