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The role of institutional investors in post-earnings announcement drift: evidence from China

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  • Guilong Cai
  • Bingxuan Lin
  • Minghai Wei
  • Xiaowei Xu

Abstract

We examine how institutional investors influence post-earnings announcement drift (PEAD) in China. Our findings suggest that institutional holdings are positively correlated with PEAD in China, especially when institutional investors herd strongly on earnings news. This positive relationship is more salient for institutional investors with shorter investment horizons and in firms with higher information opacity. We also find that stock prices reverse in the fourth quarter after the earnings announcement. In contrast to the well-established view that institutional investors exploit PEAD and accelerate the speed of information incorporation, our findings suggest that they may instead exacerbate PEAD and slow down price discovery in emerging markets with different institutional backgrounds.

Suggested Citation

  • Guilong Cai & Bingxuan Lin & Minghai Wei & Xiaowei Xu, 2021. "The role of institutional investors in post-earnings announcement drift: evidence from China," Accounting and Business Research, Taylor & Francis Journals, vol. 51(2), pages 206-236, February.
    • Handle: RePEc:taf:acctbr:v:51:y:2021:i:2:p:206-236
    DOI: 10.1080/00014788.2020.1773755
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    Cited by:

    1. Shu, Yaruo & Sohn, Sungbin, 2022. "Idiosyncratic return variation: Firm-specific information or noise?," Finance Research Letters, Elsevier, vol. 47(PA).

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