Attention! Distracted institutional investors and stock price crash

Xiaoran Ni, Qiyuan Peng, Sirui Yin and Ting Zhang

Journal of Corporate Finance, 2020, vol. 64, issue C

Abstract: Using the extreme returns of firms in unrelated industries of institutional shareholders' portfolios as exogenous variations in institutional investor distraction (Kempf et al. 2017), we find a positive and significant relation between institutional shareholder distraction and stock price crash risk. The effect is associated with weakened monitoring, and it becomes stronger when alternative corporate governance is weaker and when managers' incentives to hoard bad information are stronger. Managers reduce firms' accounting conservatism when institutional investors become distracted, which is evidence of an increased motivation to hoard bad news. Overall, our findings shed additional light on the important monitoring role of institutional investors in corporate governance.

Keywords: Shareholder distraction; Crash risk; Corporate governance; Monitoring (search for similar items in EconPapers)
JEL-codes: G32 G38 K22 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301450

DOI: 10.1016/j.jcorpfin.2020.101701

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