Investor Culture and Corporate Disclosure
61 Pages Posted: 9 Mar 2020 Last revised: 2 Sep 2022
Date Written: August 26, 2022
We examine the effect of investor culture on corporate disclosure and its capital market consequences. Because prior research shows that foreign institutions spur more long-term investment and innovation by their investees, we focus on cultural and disclosure attributes related to time and risk orientation. Using textual properties of annual reports, we first document that firms use more long-term and risk-oriented disclosures when their investor base is culturally more long-term oriented and more uncertainty-averse, respectively. We further establish a causal link using firms’ inclusion in the MSCI World Index. Lastly, we find that changes in disclosure driven by the shifting culture of the investor base decrease liquidity. Thus, it appears that investor base culture can induce disclosure-based informational frictions.
Keywords: Culture, Investor Base, Long-Term Orientation, Risk
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