Stefan Anchev

European Accounting Review

We find empirical evidence that the temporal increase in the number of institutional investors in the stock market is related to the decrease in the relevance of firms' earnings over time. This relation is: (1) apparent primarily in the short term, (2) unidirectionally Granger-causal, (3) time-invariant, (4) driven by transient and quasi-indexing institutions, and (5) obtained after controlling for time trends, several potential risk factors, and various stock market and economy characteristics. Overall, these results are consistent with the hypothesis that, due to an improvement in the risk sharing among institutional investors, the increase in their quantity in the stock market has weakened their incentives to use earnings information.

The International Journal of Accounting

We provide empirical evidence supporting the hypothesis that firms' disclosures temporarily increase the information asymmetries between individual and institutional investors, where the former are at an information disadvantage relative to the latter. Moreover, institutional investors seem to gain their information advantage because they are more able to bear the costs of extracting private information from firm disclosures. For the same reason, these investors appear to earn higher short-term returns than individual investors. Overall, these findings suggest that firms' disclosures are, at least temporarily, less informative to individual investors than they are to institutional investors.

European Accounting Review Doi: https://doi.org/10.1080/09638180.2023.2265975

We find that several well-documented underreaction-consistent stock return anomalies, such as those based on stocks' earnings-to-price ratios, returns on assets and past returns, arise and persist only among stocks with smaller (institutional) investor bases, which are presumably stocks that are neglected by investors. These results are driven by the short side of our long-short trading strategies (i.e., by the seemingly overpriced stocks from the bottom quantiles of the anomaly variables), they appear even after controlling for several stock characteristics (e.g., market capitalization and institutional ownership) and potential risk factors, and they are considerably more pronounced during periods with more information and/or less technology. Overall, these findings suggest that the incomplete dissemination of (negative) information across investors helps in explaining the occurrence and the persistence of the anomalies.