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Does It Pay to Communicate with Firms? Evidence from Firm Site Visits of Mutual Funds
Author(s) -
Liu Shasha,
Dai Yunhao,
Kong Dongmin
Publication year - 2017
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12232
Subject(s) - mutual fund , business , earnings , private information retrieval , open end fund , affect (linguistics) , accounting , finance , actuarial science , institutional investor , corporate governance , linguistics , statistics , philosophy , mathematics
By using a unique dataset on mutual fund visits to listed firms in China, we investigate whether mutual funds are able to obtain private information or benefit from their communication with firms. Our findings are as follows: 1) such communication significantly increases the subsequent trading magnitude of mutual funds; 2) mutual fund trades that rely on communication significantly predict the unexpected earnings of visited firms, which is further supported by IV‐regressions that use the number of direct flights between two cities as the instrument of communication; and 3) comprehensiveness of communication topics and firms’ information environment significantly affect the benefits that mutual funds obtain from communication. Our results are robust to alternative measures and specifications, and provide insights for regulators who are concerned with fair disclosure.