The Effect of Institutional Ownership on the Timing of Earnings Announcements

Download or read book The Effect of Institutional Ownership on the Timing of Earnings Announcements written by Silver Chung and published by . This book was released on 2018 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Managers have substantial discretion in when to announce earnings during the day. While the prior literature has shown that the timing of announcements during the day can affect the stock market's reaction to earnings news, there is either mixed or weak empirical evidence on why a manager chooses a certain time of the day to announce earnings. In this paper, I examine whether institutional ownership affects firms' decisions to announce earnings after hours (AH). AH are largely dominated by institutional investors who better understand the implications of earnings news for firm value and stock prices. I argue that firms with greater institutional ownership announce earnings AH to promote institutional investors' trading, and therefore facilitate post-announcement price discovery and reduce price volatility. Using the annual reconstitution of the Russell 1000 and 2000 indexes which provides plausibly exogenous variation in institutional ownership, I find that firms with higher institutional ownership are more likely to announce earnings during an aftermarket session (i.e., AH after the market closes), but not during a premarket session (i.e., AH before the market opens). My analysis further shows that transient institutional ownership has a stronger influence on the likelihood of after-market announcements relative to quasi-indexer and dedicated institutional holdings, and that the effect of institutional ownership on the announcement timing is more pronounced when firms have bad earnings news or large transitory earnings components. Lastly, I find that announcing earnings during an after-market session indeed facilitates the post-announcement price discovery and reduces price volatility for firms with greater institutional ownership. Collectively, my findings suggest that institutional ownership influences firms' earnings announcement timing decisions"--Pages vii-viii.