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Investing while lending: Do index funds improve managerial information disclosure?

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  • Dong, Yunhe
  • Luo, Haoyi
  • Xu, Zijin
  • Yang, Xing

Abstract

Securities lending activities have become pervasive among index funds in recent decades, yet its impact on information disclosure remains unclear. In this paper, we jointly investigate the information disclosure impact of both investing and lending activities of index funds, using a sample of the U.S. firms for 2002–2017. On the one hand, we document that securities lending deteriorates the information environment of public firms. On the other, index fund holdings are associated with greater information transparency and less bad news hoarding by firm managers, after controlling for the opposing effects from securities lending. This finding survives a battery of robustness tests and is more pronounced in a small sample using the Russell 1000/2000 index reconstitution as a source of plausibly exogenous variation in index fund holdings. We also document a negative association between index ownership and abnormal trading activities around stock price crash weeks. Our findings support the view that regardless of their pervasive securities lending engagement and passive investing strategies, index funds impose an overall favourable impact on information environment of public firms.

Suggested Citation

  • Dong, Yunhe & Luo, Haoyi & Xu, Zijin & Yang, Xing, 2024. "Investing while lending: Do index funds improve managerial information disclosure?," International Review of Financial Analysis, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finana:v:94:y:2024:i:c:s1057521924001790
    DOI: 10.1016/j.irfa.2024.103247
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    More about this item

    Keywords

    Index investing; Securities lending; Managerial information disclosures;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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