Institutional stakeholdings and better-informed traders at earnings announcements

• Published in: Journal of accounting & economics Vol. 46; no. 1; pp. 47 - 61
• Main Authors: Ali, Ashiq, Klasa, Sandy, Zhen Li, Oliver
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.09.2008; Elsevier
• Series: Journal of Accounting and Economics
• Subjects: Better-informed traders; Better-informed traders Institutional stakeholding Institutional ownership Differential precision of private predisclosure information Trading volume at earnings announcements; Business studies; Differential precision of private predisclosure information; Financial accounting; Financial information; Financial reporting; Institutional ownership; Institutional stakeholding; Institutions; Ownership and control; Trading volume at earnings announcements; Differential precision of private predisclosure information; Trading volume at earnings announcements; Institutional stakeholding; Better-informed traders; G12; G23; Institutional ownership; G14; M41
• ISSN: 0165-4101; 1879-1980
• DOI: 10.1016/j.jacceco.2008.06.001

Utama and Cready [Utama, S., Cready, W.M., 1997. Institutional ownership, differential predisclosure precision and trading volume at announcement dates. Journal of Accounting and Economics 24, 129–150] use total institutional ownership to proxy for the proportion of better-informed traders, an important determinant of trading around earnings announcements. We argue that institutions holding small stakes cannot justify the fixed cost of developing private predisclosure information. Also, institutions with large stakes generally do not trade around earnings announcements since they are dedicated investors or face regulations that make informed trading difficult. However, institutions holding medium stakes have incentives to develop private predisclosure information and trade on it; we show that their ownership is a finer proxy for the proportion of better-informed traders at earnings announcements.