Title

Stock Price Synchronicity, Crash Risk, and Institutional Investors

Document Type

Article

Publication Date

6-2013

Publication Source

Journal of Corporate Finance

Abstract

Both stock price synchronicity and crash risk are negatively related to the firm's ownership by dedicated institutional investors, which have strong incentive to monitor due to their large stake holdings and long investment horizons. In contrast, the relations become positive for transient institutional investors as they tend to trade rather than monitor. These findings suggest that institutional monitoring limits managers' extraction of the firm's cash flows, which reduces the firm-specific risk absorbed by managers, thereby leading to a lower R2. Moreover, institutional monitoring mitigates managerial bad-news hoarding, which results in a stock price crash when the accumulated bad news is finally released.

Inclusive pages

1–15

ISBN/ISSN

0929-1199

Comments

Permission documentation is on file.

Publisher

Elsevier

Volume

21

Peer Reviewed

yes