Country Origins and Types of Institutional Investors, and Firm-specific Information Flows: Evidence from Worldwide Institutional Ownerships

Using quarterly firm-level data on worldwide institutional ownership from 40 countries during the period of 1998–2006, this study investigates whether and how shareholdings by institutional investors affect the information environment, particularly the relative flow of firm-specific versus common information in the market. We find that shareholdings by foreign (especially U.S.), high-stake, and short-term institutions contribute more to the incorporation of firm-specific information into stock return, thereby reducing stock return comovement, compared with domestic, low-stake, and long-term institutions, respectively. Our change analyses show that an increase in foreign (particularly U.S.), high-stake, and short-term institutional ownership leads to a subsequent decrease in stock return comovement, but not vice versa. Overall, our results are robust to a variety of sensitivity checks.