Firm Disclosure and Individual and Institutional Investors

• In Event: 12.01. Causes and Effects of Financial Reporting Quality

Abstract

We empirically examine whether and how firm disclosures are related to the stock portfolio allocation and performance of individual and institutional investors. Our results indicate that, when the disclosure of a certain firm is greater, (1) the contemporaneous (subsequent) demand for that firm's stock of individuals is weaker (stronger) than that of institutions, (2) only the stock portfolio weights allocated to the firm's stock by institutions are CAPM-suboptimal, and (3) the returns earned on the firm's stock over the next 6 (but not 12) months by individuals are lower than those earned by institutions. Overall, these findings suggest that greater firm disclosures create temporary information asymmetries between investors who differ in their ability to pay information-processing costs.

Authors

• Stefan Anchev, BI Norwegian Business School

• Jörgen Hellström, Umeå University

• Rickard Olsson, Umeå University