Does Shareholder Composition Matter? Evidence from the Market Reaction to Corporate Earnings Announcements


  • Edith S. Hotchkiss,

  • Deon Strickland

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    • Hotchkiss is with Boston College and Strickland is with the University of North Carolina at Chapel Hill. We thank for helpful discussions, comments, and insights Kent Daniel, Scott Gibson, Richard Green, Alexander Ljungqvist, Jean Helwege, Cliff Holderness, Ed Rice, Sheridan Titman, Russ Wermers, Richard Wines, Karen Wruck, an anonymous referee, and seminar participants at University of Minnesota, University of Rochester, the 2001 American Finance Association meetings, the 2000 Western Finance Association meetings and the 2000 NBER Corporate Finance meetings.


We examine whether institutional ownership composition is related to parameters of the market reaction to negative earnings announcements. When firms report earnings below analysts' expectations, the stock price response is more negative for firms with higher levels of ownership by momentum or aggressive growth investors. There is no evidence, however, that these institutions cause an “overreaction” to earnings news. Ownership structure is also related to trading volume and to stock price volatility on days around earnings announcements. Our findings are consistent with the idea that the composition of institutional shareholders effects stock price behavior around the release of corporate information.