Institutional Ownership, Peer Pressure, and Voluntary Disclosures

Yupeng Lin · Ying Mao · Zheng Wang

130 citations0/0 files storedThe Accounting Review

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Corporate Finance and Governance

Abstract

ABSTRACT We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital. JEL Classifications: G23; G34; M41; D80. Data Availability: Data are available from the public sources cited in the text.

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References

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Cited by

2021When You Talk, I Remain Silent: Spillover Effects of Peers' Mandatory Disclosures on Firms' Voluntary Disclosures 2023Calling for transparency: Evidence from a field experiment 2017Selection Bias or Treatment Effect? A Re-Examination of Russell 1000/2000 Index Reconstitution 2021What sustainability assurance services do institutional investors demand and what value do they give them?2021Quasi‐Indexer Ownership and Insider Trading: Evidence from Russell Index Reconstitutions*

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