Does it Pay to Communicate with Firms? Evidence from Firm Site Visits of Mutual Funds

Journal of Business Finance & Accounting, Forthcoming

56 Pages Posted: 27 Dec 2016 Last revised: 6 Mar 2017

See all articles by Shasha Liu

Shasha Liu

School of Management, Jinan University

Yunhao Dai

Huazhong University of Science and Technology (Formerly Tongi Medical University)

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2016

Abstract

By using a unique dataset on mutual fund visits to listed firms in China, we investigate whether mutual funds are able to obtain private information or benefit from their communication with firms. Our findings are as follows: 1) such communication significantly increases the subsequent trading magnitude of mutual funds; 2) mutual fund trades that rely on communication significantly predict the unexpected earnings of visited firms, which is further supported by IV-regressions that use the number of direct flights between two cities as the instrument of communication; and 3) comprehensiveness of communication topics and firms’ information environment significantly affect the benefits that mutual funds obtain from communication. Our results are robust to alternative measures and specifications, and provide insights for regulators who are concerned with fair disclosure.

Keywords: Communication, Mutual Fund, Information Advantage, Site Visits

JEL Classification: G11, G12, G14

Suggested Citation

Liu, Shasha and Dai, Yunhao and Kong, Dongmin, Does it Pay to Communicate with Firms? Evidence from Firm Site Visits of Mutual Funds (December 1, 2016). Journal of Business Finance & Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2889930 or http://dx.doi.org/10.2139/ssrn.2889930

Shasha Liu

School of Management, Jinan University ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Yunhao Dai

Huazhong University of Science and Technology (Formerly Tongi Medical University) ( email )

1037 Luoyu Rd
Wuhan, Hubei 430074
China

Dongmin Kong (Contact Author)

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

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