Are institutional investors informed? The case of dividend changes for REITS and Industrial Firms
Abstract
Prior evidence on whether institutions are informed about dividend changes is mixed. We contribute to this debate by examining institutional trade around dividend changes by industrial firms and REITs. The unique features of REITs, which make them more transparent than industrial firms, present an opportunity to compare institutional trade around dividend changes by the two groups of firms and discern whether institutions are informed about dividend changes by the industrial firms. Using both univariate and multivariate difference-in-differences mean tests, we find that abnormal institutional volume is higher when industrial firms change dividends than when REITs do so. This is consistent with the higher information asymmetry associated with dividend changes by industrial firms, suggesting institutions trade more upon arrival of the more informative dividend changes by the industrial firms. Further, the observed higher abnormal institutional volume is non-directional, and institutional buys offset institutional sales after both dividend increases and reductions by the industrial firms. The higher abnormal institutional volume and the non-directional nature of the abnormal volume suggest that institutions, on average, are not as informed about dividend changes by the industrial firms as they are about the same events by REITs due to their transparent nature. Thus, we uncover new evidence that institutions are not informed about dividend changes by industrial firms.
Publication Title
Review of Quantitative Finance and Accounting
Recommended Citation
Asem, E., Baulkaran, V., Jain, P., & Sunderman, M. (2022). Are institutional investors informed? The case of dividend changes for REITS and Industrial Firms. Review of Quantitative Finance and Accounting, 58 (4), 1685-1707. https://doi.org/10.1007/s11156-021-01035-7
