Shareholder coordination and stock price informativeness

Incheol Kim, Christos Pantzalis and Bin Wang

Journal of Business Finance & Accounting, 2018, vol. 45, issue 5-6, 686-713

Abstract: We show that firm†specific information is more likely to be incorporated into stock prices when firms have stronger shareholder coordination. The premise of our work is that geographic proximity reduces communication costs among shareholders, thereby leading to better coordination. The positive coordination†informativeness relation is driven mainly by shareholder coordination among dedicated and independent institutions. We further show that the positive effect is more pronounced for firms with weaker governance mechanisms, suggesting that shareholder coordination could serve as a substitute conduit of price discovery. Lastly, we propose that shareholder coordination improves stock price informativeness through the channel of enhanced voluntary disclosure quality.

Date: 2018
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