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Institutional ownership, analyst following, and share prices

Chitru S. Fernando, Vladimir A. Gatchev and Paul A. Spindt

Journal of Banking & Finance, 2012, vol. 36, issue 8, 2175-2189

Abstract: We study the mutual relationships between institutional ownership, analyst following and share prices. We show that the pressure on firms to set lower share prices to attract analysts is attenuated by institutional monitoring. Our theory refutes the assumed causal relation between share price and institutional ownership, attributed to the share price–liquidity relation, and we show empirically that share prices and institutional ownership are positively related after controlling for liquidity. Our study provides a rationale for why better firms generally maintain higher share price levels, and offers new insights into the puzzling empirical linkages observed between nominal share price levels and firm fundamentals.

Keywords: Institutional ownership; Monitoring; Analysts; Financial intermediation; Share price level; Firm value (search for similar items in EconPapers)
JEL-codes: C24 G12 G30 (search for similar items in EconPapers)
Date: 2012
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Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2175-2189