Dedicated vs Transient: Not All Institutional Attention Is Good Attention

48 Pages Posted: 20 Sep 2022

See all articles by Adam C. Kolasinski

Adam C. Kolasinski

Texas A&M University - Department of Finance

Xu Li

The University of Hong Kong

Mark T. Soliman

University of Southern California - Marshall School of Business

Qian Xin

School of Economics and Management, Harbin Institute of Technology Shen Zhen

Date Written: September 7, 2022

Abstract

Surprisingly, prior research finds that the attention paid by active institutional investors to individual stocks has no real effects on disclosure and liquidity decisions by management. In contrast, after categorizing these same active institutional investors as either dedicated or transient, we find that the attention of dedicated active investors does significantly impact the firm’s information environment, market quality, and, ultimately, their cost of capital and real investment. And as would be expected, attention from dedicated institutional investors increases voluntary disclosure by managers and coverage by analysts, whereas attention from transient institutional investors does not. Finally, we also find that dedicated institutional investor attention improves stock liquidity and price efficiency, which ultimately results in a lower cost of capital and more real investment. Transient institutional investor attention worsens equity market quality but has few real effects.

Keywords: Disclosure; Investor Attention; Institutional Investors; Information Production; Analyst Coverage; Market Efficiency; Informed Trading; Liquidity; Cost of Capital; Real Investment

JEL Classification: G12 G14 G23 G24 M41 M45

Suggested Citation

Kolasinski, Adam C. and Li, Xu and Soliman, Mark T. and Xin, Qian, Dedicated vs Transient: Not All Institutional Attention Is Good Attention (September 7, 2022). Available at SSRN: https://ssrn.com/abstract=4211989 or http://dx.doi.org/10.2139/ssrn.4211989

Adam C. Kolasinski

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Xu Li

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Mark T. Soliman

University of Southern California - Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Qian Xin (Contact Author)

School of Economics and Management, Harbin Institute of Technology Shen Zhen ( email )

University Town
Nand District
Shenzhen, Guangdong
China

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