http://www.loc.gov/mods/v3 http://www.loc.gov/standards/mods/v3/mods-3-2.xsd
association between institutional ownership and trading volume reaction to annual earnings announcements
The study empirically investigates the relationship between
ownership structure, as revealed by the percentage of
outstanding shares held by institutional investors, and
trading volume responses to annual earnings announcements.
Kim and Verrecchia (1991a) theoretically propose that trading
volume reaction in response to public announcements is an
increasing function of the degree of differential precision
of private predisclosure information across investors. This
study builds on theirs by proposing that the relation between
trading volume reaction to earnings announcements and
institutional ownership is influenced by the difference in
the precision of private predisclosure information between
institutions and individuals. Prior studies suggest that
institutional investors are better informed and have more
precise private information than individual investors. It
follows that the extent of institutional ownership determines
the degree of differential precision across investors and
therefore influences trading volume. The study develops a
model that introduces two investor classes (individual and
institutional investors) who differ, on average, in terms of
the precision of their private predisclosure information.
The model allows precision to vary within each investor class
and it investigates how ownership structure influences the
overall variation in the precision of private predisclosure
information. The model shows that the relationship between
ownership structure is expected to be quadratic with the
quadratic curve having an inverted U-shape. The regression
results show a strong quadratic relation between
institutional ownership and trading volume response. The
results are robust with respect to alternative forms of the
empirical modells specification. The findings are consistent
with Kim and Verrecchia's theoretical proposition that
trading volume reaction to public announcements is an
increasing function of the differential precision across
investors' private predisclosure information. Further, the
study finds that the difference in the precision of private
predisclosure information between institutions and
individuals is more pronounced in firms with a restricted
Issued also on microfiche from University Microfilms Inc.