Looking for Transparency: Institutional Ownership and Innovation Disclosure
18 Pages Posted: 8 Mar 2018
Date Written: February 28, 2018
We exploit the passage of the American Investor Protection Act of 1999 (AIPA) as an exogenous shock to the informational environment of the firm and investigate institutional investors' preferences for information and firm disclosure. We find that more innovation disclosure causes an increase in firm-level institutional ownership of around 11%. This increase is mostly concentrated in institutions that actively trade on information (dedicated, quasi-indexers, short-term owners). By benefiting these institutions, innovation disclosure seems to enlarge the adverse selection gap between informed and uninformed market participants. Finally, we provide evidence suggesting a substitution effect between the degree of information disclosure to shareholders and the power they demand inside the corporation.
Keywords: Institutional Ownership, Information Disclosure, American Inventors Protection Act, Adverse Selection
JEL Classification: G14, G20, G30, G32
Suggested Citation: Suggested Citation