The role of institutional investors in post-earnings announcement drift: evidence from China

Guilong Cai, Bingxuan Lin, Minghai Wei and Xiaowei Xu

Accounting and Business Research, 2021, vol. 51, issue 2, 206-236

Abstract: We examine how institutional investors influence post-earnings announcement drift (PEAD) in China. Our findings suggest that institutional holdings are positively correlated with PEAD in China, especially when institutional investors herd strongly on earnings news. This positive relationship is more salient for institutional investors with shorter investment horizons and in firms with higher information opacity. We also find that stock prices reverse in the fourth quarter after the earnings announcement. In contrast to the well-established view that institutional investors exploit PEAD and accelerate the speed of information incorporation, our findings suggest that they may instead exacerbate PEAD and slow down price discovery in emerging markets with different institutional backgrounds.

Date: 2021
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DOI: 10.1080/00014788.2020.1773755

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