Hedge Fund Ownership and Voluntary Disclosure

• In Event: Disclosure and Investors

Abstract

Using 13F filings from 1996 to 2011, we examine the association between hedge fund ownership and voluntary disclosure. We find that the level of and change in hedge fund holdings are negatively associated with the frequency of voluntary disclosure in subsequent periods. This is opposite to the positive association documented in earlier studies as well as in our sample for non-hedge fund institutions. The negative association is more pronounced in firms held mainly by hedge funds with short-term investment horizons. We also find that the change in hedge fund ownership is positively associated with future stock returns, and such positive relation is more evident in firms that subsequently decrease their voluntary disclosures. Finally, we find that the negative association between hedge fund ownership and disclosure activity and the associated abnormal stock performance are driven by firms that decrease bad news forecasts. These findings suggest that hedge funds adversely affect the voluntary disclosures of firms to exploit their private information.

Authors

• Bok Baik, Seoul National University

• Jin-Mo Kim, Rutgers, The State University of New Jersey

• Kyonghee Kim, University of Missouri–Columbia

• Sukesh Patro, Northern Illinois University