Mutual Funds’ Reporting Frequency and Firms' Share Repurchases

Abstract

We examine a regulatory change that increased the reporting frequency of mutual funds' portfolios. Using a difference-in-differences design, we find that firms with greater ownership of mutual funds increase share repurchases following the regulatory change. We show that these share repurchases are a firm's rational response to undervaluation, which occurs because fund managers become shortsighted following the regulation and sell companies with good long-term prospects. Collectively, our results shed light on an unintended consequence of more frequent reporting in a delegated asset management framework.

Keywords: Myopia, Reporting frequency, Share repurchases, Mutual funds

JEL Classification: G23, G28, G30, G31, M40, M41