Abstract:
With the comprehensive deepening of capital market reform, institutional investors represented by public mutual funds are playing an increasingly important role in the governance of listed companies. Based on the periodic adjustments of constituent stocks of the CSI 800 and CSI 1000 indices, this paper employs a regression discontinuity design and finds that index adjustment alters the weights of stocks within an index, and that institutional investors prefer high-weight stocks with lower information collection costs. Compared with the bottom-ranked constituent stocks of the CSI 800 index, institutional investors hold a higher proportion of the top-ranked constituent stocks of the CSI 1000 index. Further analysis shows that institutional ownership significantly improves the information quality of listed companies, manifested as more frequent information disclosure, richer disclosure content, more intuitive presentation formats, as well as lower stock price synchronicity, higher levels of idiosyncratic volatility, and better stock liquidity. The underlying mechanisms are twofold: first, institutional investors urge listed companies to improve information quality through field research and the threat of exit; second, they exert indirect supervisory pressure on listed companies by leveraging the professional attention of securities analysts. This paper offers insights for strengthening the information intermediary function of institutional investors and further improving information governance in capital markets.
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