Who Benefits from Voluntary Public Disclosure? Evidence from … · 2019. 12. 9. · plan...

Who Benefits from Voluntary Public Disclosure? Evidence from Italian Market Microstructure Data

Claudia Gabbioneta (Newcastle University) Joachim Gassen (Humboldt-Universität zu Berlin)

Pietro Mazzola (IULM University)

VHB Kommission Rechnungswesen WWU Münster, February 7, 2015

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Joachim Gassen WWU Münster, DE – 7 February 2015

Who Benefits from Voluntary Public Disclosure?

Motivation

“The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

How does disclosure contribute to the distributional fairness of equity markets?

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A unique sample and data

Our analysis is based on the Italian capital market for three reasons:

•  First, we have direct access to a unique sample of Italian market microstructure data which allows us to assess the trading sizes of completed transactions separately for the buy and sell side (through a cooperation with Borsa Italiana)

•  Second, as we show based on our data, stealth trading (Barcley and Warner, 1993) appears not to be very common in Italy, at least for our time frame (2003-2006)

•  Third, despite recently passed regulations, information asymmetry is likely to exist in Italy

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The disclosure event: strategic plan presentations (SPPs)

2003-2006 STRATEGIC PLAN

Alessandro Profumo - CEO

Investor Day – Bologna, 13th June 2003

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AGENDA

2003-2006 economic scenario

UCI 3 years strategic plan

Risk management and capital allocation

Group targets

Strategic guidelines and operating targets

Business model

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... 3 NEW SEGMENT BANKS WITH CLEARLY DEFINED MISSIONS...

THE RETAIL BANK:TO BE THE LARGEST LOCAL ITALIAN BANK, COMMITTED TO HELP HOUSEHOLDS AND SMALL BUSINESSES “MAKE THEIR LIFE PROJECTS REAL”

THE PRIVATE BANK:THE LEADING ITALIAN WEALTH MANAGEMENT PROVIDER FOCUSED ON PRESERVING AND INCREASING THE WEALTH OF PRIVATE CLIENTS THROUGH A HOLISTIC APPROACH, SUPERIOR SERVICE AND INNOVATIVE SOLUTIONS

THE CORPORATE BANK:TO SET THE STANDARD FOR A NEW BANKING-SMEs RELATIONSHIP THROUGH EXCELLENCE IN DESIGN & DELIVERY OF PRODUCTS & SERVICES AND CUSTOMER SELECTION, BEING RECOGNISED AS THE KEY PARTNER IN MANAGING CLIENTS RISKS

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Existing customers

New customers Efficiency Risk mgmt Intra-group

synergies

PioneerUBI

UCBUPB

UBMUBI

PioneerUBMTradingLab

Revenue growth

... TAILORED STRATEGIES FOR DIFFERENT CUSTOMER SEGMENTS AND GEOGRAPHIES...

High importance

Low importance

Corporate business

Private Banking business

New Europe

Retail business

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PLAN’S GROWTH RATES AND EFFICIENCY INDICATORS OUTPERFORMING THE SYSTEM

REVENUE GROWTHEuro mln 2002 2002 2006

GROUP 10,284 8.6 GROUP 54.6 50

Retail Division 4,728 8.0 Retail Division 63.6 56

Corporate Division 2,734 9.9 Corporate Division 32.6 29

Private & AM Division 1,072 10.2 Private & AM Division 61.1 58

New Europe Division 1,830 8.8 New Europe Division 51.6 45

COST/INCOME, %

UCI Italian divisions excl. Pioneer 7,999 8.9 UCI Italian divisions

excl. Pioneer 52.7 46

Italian system n.m. 4.8 Italian system 64.2 60

CAGR 02-06

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AVERAGE PAY-OUT RATIO AROUND

65% TO STABILISE CORE TIER 1 RATIO

AT 2002 LEVEL

CAPITAL ALLOCATION STRICTLY LINKED TO GROWTH TARGETS AND RISKS OF EACH DIVISIONECONOMIC CAPITAL SAVING THANKS TO BIS II STARTING FROM 2007

2002 Core Tier 1 ratio: 7.2%

Private & AMNew Europe

Corporate Centre

Retail

Corporate

14,100 mln(1)

9,207 mln

31.0%

30.6%

8.6%8.1%

6.0%

10.3%

20062002

49.8%

2.9%

45.8%

6.8%

(1) Capital available for allocation. The capital allocated to New Europe banks is net of the excess capital attributable tominority shareholders, which is transferred to Corporate Centre for allocation to other initiatives

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Research questions and predictions Empirical expectations

Theoretical predictions RQ1 RQ2 RQ3 RQ4

Who acts as net buyer around

SPPs?

Who trades in the direction of

the price change?

Do large investors act as net buyers prior to SPPs?

Who benefits from SPPs by

realizing positive abnormal investment

returns?

SPPs cause decrease in information asymmetry

Small investors ? No Marginally positive returns for

both

SPPs cause increase in information asymmetry

Large investors ? Yes, conditional on news (assuming

that they can privately predict

information content)

Marginally negative returns

for both

SPPs cause attention-based noise trading by unsophisticated investors

? Large investors Yes, unconditional on news

Positive abnormal returns for large

investors, negative abnormal returns

for small investors

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Background: Trading effects of disclosure

•  Assuming rational investors, (voluntary) disclosure might reduce information asymmetry –  Theory: Kim and Verrecchia, JAR and JFE 1991 –  Empirics: Atiase and Bamber, JAE 1994; Ali et al. JAE 2008

•  Different priors and information processing skills might cause disclosure to increase info. asymmetry –  T: Kim and Verrecchia, JAE 1994; Kandel and Pearson JPE 1995 –  E: Bamber, JFQA 1999; Gillette et al, CAR 1999

•  Relaxing the rationality assumption for small trades, sentiment and attention might trigger opportunistic trading strategies by large traders –  E: Hirshleifer and Teoh, JAE 2003; Barber and Odean RFS 2008

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Methodology: Sample and indentification of investor types

•  72 Italian firms for which we were able to identify at least one strategic plan presentation (SPPs) for the time period 2003 to 2006.

•  For each of these firms, order book data lists completed transactions separately for buy and sell side

•  Based on prior literature (Cready, JAR 1988; Bhattacharya, TAR 2001) investor types (large and small) are inferred based from trade sizes.

•  Following the methodology of Bhattacharya et al. (TAR 2007), we identify small investors (trades of up to € 7,000) and large investors (exceeding € 50,000)

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•  Institutional investors in the U.S. mask their trading behavior in small/medium trades (Cready et al. JAR 2014).

•  We do not find any evidence for stealth trading in Italy for our time period

Methodology: Investors’ trading share over time

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Results: Base event study

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Table 4: Information Content of SPPs

, log , ,

log , ,

Dependent Variable CARET ABSCARET CATVOL Controls ln(MKTCAP) 0.004*** 0.002 0.226 (0.002) (0.002) (0.335) MTB -0.000 -0.000 -0.004 (0.000) (0.000) (0.102) ln(MKTVOL) -0.003*** 0.004*** 0.830*** (0.001) (0.001) (0.183) Event SPP 0.011*** 0.013*** 3.910*** (0.004) (0.003) (0.686) Yearly fixed effects Yes Yes Yes Firm fixed effects Yes Yes Yes R 0.020 0.549 0.062 n 13,618 13,618 13,618

Notes: The table reports OLS estimates of the specified model. Robust standard errors clustered by firm are reported in parenthesis below the coefficients. ***/**/* mark two-sided significance at the 1, 5 and 10% level, respectively. All variables are as defined in Appendix C.

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Results RQ1: Who acts as net buyer around SPPs?

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Table 5: Who Acts as Net Buyer around SPPs?

, , log , ,

log _ , _ ∗ ,, ,

DEPVAR CAVOL CANBV Controls ln(MKTCAP) 0.049 0.004 (0.084) (0.008) MTB 0.013 0.001 (0.020) (0.001) ln(MKTVOL) 0.298*** 0.000 (0.060) (0.006) LARGE_INV 0.051 0.001 (0.035) (0.004) Events SPP 0.750*** -0.002

LARGE_INV*SPP (0.212) 0.400

(0.044) -0.027

(0.316) (0.086) Yearly fixed effects Yes Yes Firm fixed effects Yes Yes R 0.037 0.001 n 27,236 27,236

Notes: This table reports the test for the second research question (“Who acts as net buyer around SPPs?”). It reports OLS estimates of the specified model. Robust standard errors clustered by firm are reported in parenthesis below the coefficients. ***/**/* mark two-sided significance at the 1, 5 and 10% level, respectively. All variables are as defined in Appendix C.

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Results RQ2: Who trades into the direction of the price change?

Quartiles constructed by event abnormal return (CARET), n=102

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Table 6: Who Trades into the Direction of the Price Change?

Panel A: Abnormal Trading Activity by Abnormal Event Return Quartiles

CARET Quartile CARET CAVOL_S CAVOL_L CANBV_S CANBV_L 1 (Low) -0.036

(-0.030) 0.929**

(0.109***) 1.787***

(0.781***) 0.267***

(0.074***) -0.281**

(-0.165***) 2 -0.004

(-0.004) 0.587

(0.010) 0.203

(0.000) -0.074

(-0.020) -0.077

(-0.024) 3 0.022

(0.022) 0.768***

(0.136***) 1.700***

(0.752***) 0.007

(0.003) -0.057 (0.041)

4 (High) 0.068 (0.065)

1.625*** (0.528***)

2.035*** (1.085***)

-0.186* (-0.071*)

0.325** (0.166**)

High-Low Mean High-Low Median

0.697 0.419

0.248 0.304

-0.453*** -0.145***

0.601*** 0.331***

.

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Results RQ3: Do large investors act as net buyers prior the IPO?

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(Table 7 Continued)

Panel C: Regression Results

_ , ,

, _

_ ∗ , , ,

Dependent Variable CANBV Period PRE PRE EVENT POST TOTAL CARET -2.157 -4.593*** -7.622** -14.233** (2.238) (1.334) (3.323) (5.536) LARGE_INV 0.354* 0.305 -0.149* -0.595* -0.398 (0.202) (0.209) (0.076) (0.354) (0.502) CARET*LARGE_INV 3.890 9.685*** 15.835** 27.987** (4.499) (2.519) (6.258) (10.245) Yearly fixed effects Yes Yes Yes Yes Yes Industry fixed effects Yes Yes Yes Yes Yes F-Test: CARET + CARET*LARGE_INV = 0 0.34 12.38*** 3.82* 4.26**

Adj. R2 0.056 0.060 0.174 0.067 0.059 n 204 204 204 204 204

Notes: This table reports the test for the third research question (“Do large investors act as net buyers prior to SPPs?”). Panel A and B report abnormal net buying activity by abnormal event return quartiles. Median values are reported in parenthesis below the means. Panel C reports the regression results for the specified model. OLS results and standard errors clustered by firm are reported. ***/**/* mark two-sided significance at the 1, 5 and 10% level, respectively. All variables are as defined in Appendix C.

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RQ4: Who benefits from voluntary disclosure?

-0,06

-0,04

-0,02

0

0,02

0,04

0,06

0,08

-20

-19

-18

-17

-16

-15

-14

-13

-12

-11

-10 -9

-8

-7

-6

-5

-4

-3

-2

-1

0 1 2 3 4 5 6 7 8 9 10

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12

13

14

15

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18

19

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Control Small Control Large SPP Small SPP Large

Cumulative abnormal investment return CAIRET, calculated based on the net buying behavior of the respective investor group

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Results RQ4: Who benefits from voluntary disclosure?

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Table 8: Who Benefits from SPPs?

Panel A: Descriptive Statistics for the Cumulative Abnormal Investment Return Measure

Variable Mean Std. Dev. 25% 50% 75% Control Sample (n=309) CAIRET_S -0.012 0.137 -0.025 0.001 0.016 CAIRET_L 0.009 0.140 -0.025 0.001 0.036 SPP Sample (n=102) CAIRET_S -0.053** 0.191 -0.057 -0.002 0.008 CAIRET_L 0.059** 0.205 -0.023 0.011* 0.125

Panel B: Cumulative Abnormal Investment Return by Firm Size

MKTCAP Quartile

MKTCAP CAIRET_S CAIRET_L

1 (Low) 0.101 (0.109)

-0.186*** (-0.053***)

0.110** (0.011*)

2 0.703 (0.755)

-0.024*** (-0.007)

0.065* (0.021)

3 2.873 (2.721)

-0.014 (0.000)

0.050 (0.017)

4 (High) 33.482 (27.034)

0.009 (-0.000)

0.010 (0.006)


0.195*** 0.053***

0.102* 0.017

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Results RQ4: Who benefits from voluntary disclosure?

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Table 8: Who Benefits from SPPs?

Panel A: Descriptive Statistics for the Cumulative Abnormal Investment Return Measure

Variable Mean Std. Dev. 25% 50% 75% Control Sample (n=309) CAIRET_S -0.012 0.137 -0.025 0.001 0.016 CAIRET_L 0.009 0.140 -0.025 0.001 0.036 SPP Sample (n=102) CAIRET_S -0.053** 0.191 -0.057 -0.002 0.008 CAIRET_L 0.059** 0.205 -0.023 0.011* 0.125

Panel B: Cumulative Abnormal Investment Return by Firm Size

MKTCAP Quartile

MKTCAP CAIRET_S CAIRET_L

1 (Low) 0.101 (0.109)

-0.186*** (-0.053***)

0.110** (0.011*)

2 0.703 (0.755)

-0.024*** (-0.007)

0.065* (0.021)

3 2.873 (2.721)

-0.014 (0.000)

0.050 (0.017)

4 (High) 33.482 (27.034)

0.009 (-0.000)

0.010 (0.006)


0.195*** 0.053***

0.102* 0.017

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Additional analyses: The role of media coverage

Response Surface Model ΔCARIT_LS

ln(MKTCAP)

ln(S

PP

rela

ted

new

spap

er a

rticl

es-1

,1)

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Additional analyses: The role of media coverage

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Additional analyses: earnings announcements vs. SPPs

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Summary of results

•  The results are inconsistent with a “level the playing field story”. Large investors move the market

•  Small investors tend to act as net buyers post the event unconditional on its news content, consistent with SPP causing attention/sentiment

•  Large investors use this predictable liquidity to adjust their portfolio holdings downwards in case of bad news

•  This trading strategy yields economically significant positive (negative) abnormal return for large (small) investors

•  The effects of SPPs differ from earnings announcements. Media coverage seems to increase the relative advantage of large investors

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Contribution and limitations

•  Contributions –  This study provides evidence consistent with trading around

disclosure being caused by heterogeneous information processing –  Enhanced voluntary disclosure, while potentially making prices more

informative, might unlevel the playing field –  Regulated public disclosure might fall short of meeting its objective to

reduce the gap between informed and uninformed investors and impose unintended wealth distribution effects

•  Limitations –  Based on data limitations, we are unable to identify intraday trading

patterns –  We cannot completely rule out stealth trading (but this would run

counter to our results) –  Not clear whether results generalize to other markets or other

disclosure settings

Who Benefits from Voluntary Public Disclosure? Evidence from … · 2019. 12. 9. · plan...

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