Faculty Publications

Distracted Institutions, Information Asymmetry And Stock Price Stability

Document Type

Article

Keywords

information asymmetry, institutional ownership, stock price crash risk

Journal/Book/Conference Title

Journal of Business Finance and Accounting

Abstract

We study the interplay between stock price stability and the information environment following periods of institutional distraction. Using a large panel dataset over the years 1982–2016, we find that the level of ownership by distracted institutions significantly explains crash risk independent of additional determinants identified in prior research. Distraction has a pronounced effect on crash risk among firms that are subject to greater information opacity. Furthermore, we identify a causal impact of institutional distraction on the quality of the information environment that persists over the year following the distraction period. This heightened information asymmetry impedes investors’ ability to process information, leading investors to overreact to bad news.

Department

Department of Finance

Original Publication Date

1-1-2021

DOI of published version

10.1080/02701367.2020.1856316

Repository

UNI ScholarWorks, Rod Library, University of Northern Iowa

Language

en

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