IDEAS home Printed from https://ideas.repec.org/a/wly/coacre/v35y2018i2p866-897.html
   My bibliography  Save this article

Business Ties and Information Advantage: Evidence from Mutual Fund Trading

Author

Listed:
  • Ying Duan
  • Edith S. Hotchkiss
  • Yawen Jiao

Abstract

This article examines whether ties to portfolio firms’ management via pension business relationships provide mutual funds with an informational advantage. Funds become related to portfolio companies when fund families serve as trustees for firms’ employee pension plans. Selling by related funds is more likely to be motivated by an information advantage than their buying, because the latter is heavily influenced by the desire to secure pension inflows. We find that stocks with larger net sales by related funds experience lower future returns. Information appears related to firm fundamentals, as the return predictability of related funds’ selling concentrates in stocks with negative future earnings surprises. Consistent with an information‐based explanation, the predictive power of related funds’ selling for future returns is more pronounced when information uncertainty about the stock is higher. Our results contribute to a growing literature that shows the sources of informed trading by institutions. Les auteures se demandent si les liens qu’établissent les fonds communs de placement (FCP) avec les directions de sociétés de portefeuille grâce à leurs relations d'affaires dans le domaine des régimes de retraite procurent à ces FCP un avantage en matière d'information. Les FCP entrent en relation avec les sociétés de portefeuille lorsque les familles de fonds jouent le rôle de fiduciaires pour les régimes de retraite des employés des sociétés. La décision de vendre que prennent les FCP ainsi liés aux sociétés de portefeuille (FCP liés) est plus susceptible d’être motivée par un avantage en matière d'information que leur décision d'acheter, car la décision d'achat est fortement influencée par le désir de garantir les entrées de fonds des caisses de retraite. Les auteures constatent que les actions dont les ventes nettes attribuables aux FCP liés sont plus élevées enregistrent des rendements futurs plus modestes. Le contenu en information semble rattaché aux caractéristiques fondamentales de l'entreprise, puisque la prévisibilité du rendement des ventes attribuables aux FCP liés est concentrée sur les actions présentant des résultats futurs inattendus qui sont négatifs. Une explication fondée sur l'information laisse croire que le pouvoir prédictif des décisions de vente des FCP liés en ce qui a trait aux rendements futurs est plus important lorsque l'incertitude entourant l'information relative à l'action est plus grande. Les résultats de l’étude enrichissent la documentation de plus en plus abondante relative aux sources auxquelles puisent les institutions pour mener des négociations éclairées.

Suggested Citation

  • Ying Duan & Edith S. Hotchkiss & Yawen Jiao, 2018. "Business Ties and Information Advantage: Evidence from Mutual Fund Trading," Contemporary Accounting Research, John Wiley & Sons, vol. 35(2), pages 866-897, June.
  • Handle: RePEc:wly:coacre:v:35:y:2018:i:2:p:866-897
    DOI: 10.1111/1911-3846.12405
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1911-3846.12405
    Download Restriction: no

    File URL: https://libkey.io/10.1111/1911-3846.12405?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kanis Saengchote & Jananya Sthienchoak, 2020. "Mutual Fund Participation in IPOs: Thai Evidence," PIER Discussion Papers 131, Puey Ungphakorn Institute for Economic Research.
    2. Duan, Ying & Jiao, Yawen & Tam, Kinsun, 2021. "Conflict of interest and proxy voting by institutional investors," Journal of Corporate Finance, Elsevier, vol. 70(C).
    3. Saengchote, Kanis & Sthienchoak, Jananya, 2020. "Strategic participation in IPOs by affiliated mutual funds: Thai evidence," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    4. Calluzzo, Paul & Kedia, Simi, 2019. "Mutual fund board connections and proxy voting," Journal of Financial Economics, Elsevier, vol. 134(3), pages 669-688.
    5. Zhuang, Zhuang & Hong, Xin & Yao, Juan, 2023. "The journey is the reward: A study of corporate site visits and mutual fund performance," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    6. Jiao, Yawen, 2022. "Decision-based trades: An analysis of institutional investors’ information advantages," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 104-115.
    7. Chen, Jie & Lasfer, Meziane & Song, Wei & Zhou, Si, 2021. "Recession managers and mutual fund performance," Journal of Corporate Finance, Elsevier, vol. 69(C).
    8. Pedersen, David J., 2021. "Do business ties generate private information? Evidence from institutional trading around M&A announcements," Finance Research Letters, Elsevier, vol. 38(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:coacre:v:35:y:2018:i:2:p:866-897. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1911-3846 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.