Working Paper: CEPR ID: DP17736
Authors: Laurent Bouton; Aniol Llorentesaguer; Antonin Mac Adam; Adam Meirowitz; Shaoting Pi; Dimitrios Xefteris
Abstract: We study how beliefs about firm value respond to public information stemming from either public announcements or shareholder meetings. We focus on settings with homogeneous shareholders (i.e., agents with common preferences and opinions), where information is about which course of action is best for the firm. The analysis illustrates that extant work dismissing homogeneous shareholders models has over-reached. Counter to the received wisdom, these models can explain increases in trading volume after public events (a pattern which is documented by several empirical papers). Two economic insights surface. First, when homogeneous shareholders anticipate that firm decisions will be guided by information, the presence of differences in belief about the firm's fundamentals and best course of action need not lead to differences in belief about firm value. Second, when voting is not fully informative, homogeneous shareholders will seek to generate informational rents from trading after the vote. Both of these incentive effects will tend to generate increases in trading volume after public events.
Keywords: public information; shareholder voting; trade; information aggregation; disagreement
JEL Codes: D72; D82; D83; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public announcements (E60) | Trading volume (G15) |
| Public announcements (E60) | Belief divergence among shareholders (G40) |
| Shareholder voting (G34) | Beliefs about firm value (L21) |
| Nature of voting information (K16) | Trading behavior (G40) |
| Voting not fully informative (D72) | Generate informational rents from trading (G19) |
| Public information (H49) | Belief convergence/divergence (D80) |