Institutional Cross-Ownership and Corporate Disclosure

• In Event: Disclosure

Abstract

The majority of U.S. public firms are held by institutional blockholders that simultaneously blockhold other firms in the same industry, a phenomenon referred to as institutional cross-ownership. We examine the effect of institutional cross-ownership on corporate voluntary disclosure. As cross-holding institutions play a coordination role to reduce competition among peer firms they simultaneously hold to increase their portfolio value, cross-ownership reduces the proprietary costs of disclosure and facilitates information sharing among peer firms for the purpose of facilitating tacit collusion. Thus, we predict that institutional cross-ownership has a positive effect on voluntary disclosure. Consistent with this prediction, we find that firms with greater institutional cross-ownership provide more management earnings forecasts. As expected, this result is driven by dedicated institutions and quasi-indexers, but not by transient institutions. Our main finding is robust to a difference-in-difference analysis using a quasi-natural experiment of financial institution mergers, and to alternative measures of voluntary disclosure.

Authors

• Ashiq Ali, University of Texas at Dallas

• Zhongwen Fan, University of Texas at Dallas

• Ningzhong Li, University of Texas at Dallas