•New Product Pre-announcements (NPPAs) are issued by firms signaling the availability of a new product at a future date.•Retail and institutional investors have varying levels of knowledge and ...resources and differ in their response to an NPPA.•The differences involve investment horizons, risk taking and influence of external reports in buy decisions.•Retail investors are not ordinarily drawn to an NPPA and prefer riskier firms and shorter time horizons of investment.•Conversely, institutional investors do react to an NPPA and prefer lower-risk stocks.•Analyst reports for institutional investors and business media for retail investors may change such inherent preferences.•Institutional but not retail investors are instrumental in new product release following an NPPA.
Firms often use new product preannouncements (NPPAs) to attract investors and inform them about innovative offerings in the pipeline. We observe that the appeal of an NPPA differs for retail and institutional investors. Utilizing prospect theory, we argue that the two types of investors face unequal levels of uncertainty and are dissimilarly loss averse due to varying levels of knowledge and access to resources. This results in varying attitudes towards investment horizon, risk-taking, and preference for information sources. We find investor proclivity toward an NPPA depends on several factors, including the short-term abnormal return, the valence of coverage in media and analyst reports, the firm's risk profile, and the exploration emphasis of the firm. Moreover, we show that higher levels of institutional ownership ultimately contribute to new product success. The results hold implications for strategies that managers can employ to increase investor ownership within the firm to fund innovation.
Purpose - As the influence of institutional investors over managerial decision-making grows, so does the importance of understanding the effect of institutional investor ownership (IO) on firm ...outcomes. The authors take a comprehensive approach to studying the effect of IO on earnings management (EM). Design/methodology/approach The authors study the relation between IO and EM using a sample of 59,503 listed U.S. firm-year observations from 1981-2019. The authors proxy EM with earnings surprises and with accrual-based and real activity measures. The authors test for nonlinear relations and analyze changes resulting from the passage of the Sarbanes-Oxley Act. Findings The findings support a positive IO-EM relation overall, but show that the relation is dynamic and heavily context-dependent with evidence of nonlinearity. The authors also find evidence that IO positively affects accrual-based EM and real activities EM negatively. Originality/value To the authors' knowledge, this is the first study of the IO-EM relation to consider evidence of nonlinearity in the U.S. context, measuring changes to the relation over time, and with the use of several measures of EM.
•Interaction of payout policy and investment opportunities.•Institutional investors condition preferences for dividends on need to fund growth.•Investing style is an important mediator in preferences ...for combinations of payout levels and growth opportunities.
This paper examines the relationship between institutional holdings and dividend policy by jointly considering investment style and firms’ growth opportunities. It helps to resolve the apparent low-dividend-preference puzzle in which institutional investors have higher holdings in dividend-paying firms, but among dividend payers, prefer firms that pay low dividends. We find that, controlling for style, institutional investors’ preferences for dividends are based on whether payout levels are consistent with firms’ needs to fund growth opportunities. High payout is preferred for firms with low growth opportunities, and low or no payout is preferred for firms with high growth opportunities. The results enhance our understanding of payout preferences of institutions by demonstrating the interactions of investment opportunities and investing style with respect to institutional investors’ payout preferences.
business leaders' social status significantly impacts companies' strategic direction and performance. Digital transformation, an important tool for companies to enhance competitiveness and ...resilience, plays an important role in the relationship between executive background and firm performance.
To investigate the impact of celebrity chief executive officers (CEO) on firm performance through digital transformation.
Using data from companies listed on the main boards of the Shanghai and Shenzhen Stock Exchanges between 2017 and 2021, this study explored the relationship between celebrity CEOs, digital transformation, and firm performance.
Celebrity CEOs significantly enhanced a firm's digital transformation. However, this effect weakened when controlling shareholders and institutional investors held more shares. Additionally, the study showed that celebrity CEOs can improve firm performance through digital transformation. These findings were robust across a range of sensitivity analyses.
This study contributes to understanding celebrity CEOs' decision-making motivations and economic impacts from a psychological perspective while also providing valuable insights for driving digital transformation within companies.
As market stabilization funds (MSFs) are usually established to stabilize a short-term stock market disaster, most of them will “retreat” after crashes. However, there is an exception, i.e., the ...Chinese MSFs, which still purchase and hold a large number of shares even after the stock market crash. This paper concentrates on the trading behavior of the Chinese MSFs in a post-crash period by investigating the association between MSFs holding and future stock price crash risk. We show that, during the post-crash period, stocks held by MSFs experience significantly lower future crash risk than those un-held by MSFs in the short run. Moreover, this negative association cannot be explained by the “trading channel,” “signaling channel,” or “monitoring channel.” Our findings corroborate that the Chinese MSFs, which manage massive resources from taxpayers, are capable of detecting stocks with lower future crash risk.
We examine the impact of institutional investor cross-ownership in the same industry (IICO) on corporate innovation. Previous studies suggest that there are pros and cons of IICO. Using a sample of ...Chinese firms, we document that IICO positively affects corporate innovation, which is consistent with the knowledge-sharing and monitoring hypothesis. Our findings are robust to alternative specifications of IICO and innovation, alternative estimation methods, and after accounting for endogeneity. Further analyses suggest that when firms have highly concentrated ownership (in terms of large shareholders) or the check-and-balance among large shareholders is weak, the impact of IICO on innovation is more pronounced; which corroborate with the underlying logic of enhancing monitoring in the presence of IICO. In terms of knowledge-sharing, we find that the impact of IICO on innovation is more pronounced when a firm faces highly competitive product market, which corroborates with the logic that institutional investors are able to bring knowhow from one firm to benefit another firm.
•We use deep natural language processing to analyze textual news on ESG controversies.•ESG controversies significantly increase investors’ trading activities.•Domestic institutions sell stocks with ...controversies.
This study examines how investor trading behavior changes following environmental, social, and governance (ESG) controversies by analyzing textual news data. We use deep-learning-based natural language processing to classify news articles into specific categories of controversy. ESG controversies generally increase investors’ trading activities regardless of their type, while their reactions differ by ESG pillar. Interestingly, domestic institutions tend to sell stocks with controversies.
Highly sophisticated institutional investors are generally not profitable when trading around share repurchase announcements because they are pitted against better‐informed entities such as the firm ...and its insiders. The firm and its insiders know the announcement's intention and timing and enjoy regulatory exemptions regarding the timing and pricing of repurchase implementation or lack thereof. Institutions do not have the same advantages or information ex ante, but they do have access to the trades of insiders 2 days after the transaction date. We find that some institutions are profitable but only when insiders’ buying signal matches the firm's repurchase signal.
•We examine the impact of institutional investor networks on stock price crash risk in China.•Central active institutions have a positive influence on stock price crash risk.•The positive effect is ...robust to endogeneity concerns and a series of robustness tests.•The positive effect is partially attributed to reduced accounting conservatism and investor herding.
We examine the impact of institutional investor networks on stock price crash risk in China. Using data from 2007 to 2019 on Chinese institutional investors, we document that well-connected institutions (i.e., institutions in the institutional investor network) from more central network positions can increase stock price crash risk more than other investors. The documented effect is robust to endogeneity concerns. We also find that the role of institutional investor networks in increasing crash risks is partially attributed to reduced accounting conservatism and investor herding. Our article sheds light on the effects of institutional investor networks on stock price crash risk.
