Distracted institutions, information asymmetry and stock price stability
information asymmetry, institutional ownership, stock price crash risk
Journal of Business Finance and Accounting
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 of Finance
Original Publication Date
DOI of published version
UNI ScholarWorks, Rod Library, University of Northern Iowa
Flugum, Ryan; Orlova, Svetlana; Prevost, Andrew; and Sun, Li, "Distracted institutions, information asymmetry and stock price stability" (2021). Faculty Publications. 154.