Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-15T20:40:13.321Z Has data issue: false hasContentIssue false
  • English
  • Français

The Geography of Information Acquisition

Published online by Cambridge University Press:  05 May 2022

Honghui Chen Open the ORCID record for Honghui Chen [Opens in a new window] ,
Yuanyu Qu Open the ORCID record for Yuanyu Qu [Opens in a new window] ,
Tao Shen Open the ORCID record for Tao Shen [Opens in a new window] ,
Qinghai Wang Open the ORCID record for Qinghai Wang [Opens in a new window]  and
David X. Xu Open the ORCID record for David X. Xu [Opens in a new window]
Honghui Chen*
Affiliation:
University of Central Florida College of Business
Yuanyu Qu
Affiliation:
University of International Business and Economics School of Banking and Finance quyuanyu@uibe.edu.cn
Tao Shen
Affiliation:
Tsinghua University School of Economics and Management shentao@sem.tsinghua.edu.cn
Qinghai Wang
Affiliation:
University of Central Florida College of Business Qinghai.Wang@ucf.edu
David X. Xu
Affiliation:
Southern Methodist University Cox School of Business davidxu@smu.edu
*
Honghui.Chen@bus.ucf.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Using detailed data on company visits by Chinese mutual funds, we provide direct evidence of mutual fund information acquisition activities and the consequent informational advantages mutual funds establish in local firms. Mutual funds are more likely to visit local and nearby firms both in and outside of their portfolios, but the ease of travel between fund and firm locations can substantially alleviate geographic distance constraints. Company visits by mutual funds are strongly associated with both fund trading activities and fund trading performance. Our results show that geographic constraints and costly information acquisition amplify information asymmetry in financial markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 6 , September 2022 , pp. 2251 - 2285
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article combines two separate working papers, previously circulated as “The Geography of Information Acquisition” by Honghui Chen, Yuanyu Qu, Tao Shen, and Qinghai Wang and “Costly Information Acquisition and Investment Decisions: Quasi-Experimental Evidence” by David X. Xu. We appreciate helpful comments and constructive suggestions from Aydogan Alti, Stephen Brown (discussant), Tao Chen, Jennifer Conrad (the editor), Luis Goncalves-Pinto (discussant), Kewei Hou, Jennifer Huang, Sheng Huang, Travis Johnson, Ron Kaniel, Stephen Karolyi (discussant), Chun Kuang, Lin Peng, Alberto Rossi, Tianyue Ruan, Clemens Sialm, Sheridan Titman, Shane Underwood (the referee), Xue Wang, Michael Weber (discussant), John Wei, Jingyun Yang, Qi (Jacky) Zhang, and seminar participants at the 2019 SFS Cavalcade North America, 2019 Australasian Finance & Banking Conference, 2020 Midwest Finance Association Annual Meeting, Tsinghua Finance Workshop 2019, Modern Risk Society 2019, Economics and Management Advanced Forum at the Wuhan University of Technology 2019, and University of International Business and Economics 2019. Qu thanks the National Natural Science Foundation of China (grant ID 72003025) for financial support. Shen thanks the Tsinghua University Initiative Scientific Research Program (grant ID 2019THZWJC17) and National Natural Science Foundation of China (grant ID 71603147) for financial support. All errors are our own.

References

Alexander, G.; Cici, G.; and Gibson, S.. “Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds.” Review of Financial Studies, 20 (2007), 125–150.CrossRefGoogle Scholar
Baik, B.; Kang, J. K.; and Kim, J. M.. “Local Institutional Investors, Information Asymmetries, and Equity Returns.” Journal of Financial Economics, 97 (2010), 81–106.Google Scholar
Bernstein, S.; Giroud, X.; and Townsend, R. R.. “The Impact of Venture Capital Monitoring.” Journal of Finance, 71 (2016), 1591–1622.Google Scholar
Bowen, R. M.; Dutta, S.; Tang, S.; and Zhu, P.. “Inside the ‘Black Box’ of Private In-House Meetings.” Review of Accounting Studies, 23 (2018), 487–527.Google Scholar
Brown, L. D.; Call, A. C.; Clement, M. B.; and Sharp, N. Y.. “Inside the ‘Black Box’ of Sell‐Side Financial Analysts.” Journal of Accounting Research, 53 (2015), 1–47.CrossRefGoogle Scholar
Bushee, B. J.; Gerakos, J.; and Lee, L. F.. “Corporate Jets and Private Meetings with Investors.” Journal of Accounting and Economics, 65 (2018), 358–379.CrossRefGoogle Scholar
Bushee, B. J.; Jung, M. J.; and Miller, G. S.. “Conference Presentations and the Disclosure Milieu.” Journal of Accounting Research, 49 (2011), 1163–1192.CrossRefGoogle Scholar
Cheng, Q.; Du, F.; Wang, X.; and Wang, Y.. “Seeing Is Believing: Analysts’ Corporate Site Visits.” Review of Accounting Studies, 21 (2016), 1245–1286.Google Scholar
Coval, J. D., and Moskowitz, T. J.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 2045–2073.CrossRefGoogle Scholar
Coval, J. D., and Moskowitz, T. J.. “The Geography of Investment: Informed Trading and Asset Prices.” Journal of Political Economy, 109 (2001), 811–841.Google Scholar
Da, Z.; Gurun, U. G.; Li, B.; and Warachka, M.. “Investment in a Smaller World: The Implications of Air Travel for Investors and Firms.” Management Science, 67 (2021), 417–435.Google Scholar
Daniel, K.; Grinblatt, M.; Titman, S.; and Wermers, R.. “Measuring Mutual Fund Performance with Characteristic‐Based Benchmarks.” Journal of Finance, 52 (1997), 1035–1058.CrossRefGoogle Scholar
Ellis, J.; Madureira, L.; and Underwood, S.. “The Causal Effects of Proximity on Investment: Evidence from Flight Introductions.” Journal of Financial and Quantitative Analysis, 55 (2020), 1978–2004.Google Scholar
Giroud, X. “Proximity and Investment: Evidence from Plant-Level Data.” Quarterly Journal of Economics, 128 (2013), 861–915.CrossRefGoogle Scholar
Green, T. C.; Jame, R.; Markov, S.; and Subasi, M.. “Access to Management and the Informativeness of Analyst Research.” Journal of Financial Economics, 114 (2014a), 239–255.CrossRefGoogle Scholar
Green, T. C.; Jame, R.; Markov, S.; and Subasi, M.. “Broker-Hosted Investor Conferences.” Journal of Accounting and Economics, 58 (2014b), 142–166.CrossRefGoogle Scholar
Gurun, U. G., and Butler, A. W.. “Don’t Believe the Hype: Local Media Slant, Local Advertising, and Firm Value.” Journal of Finance, 67 (2012), 561–598.CrossRefGoogle Scholar
Han, B.; Kong, D.; and Liu, S.. “Do Analysts Gain an Informational Advantage by Visiting Listed Companies?” Contemporary Accounting Research, 35 (2018), 1843–1867.CrossRefGoogle Scholar
Herpfer, C.; Mjøs, A.; and Schmidt, C.. “The Causal Impact of Distance on Bank Lending.” Working Paper, Emory University - Goizueta Business School (2018).Google Scholar
Hu, G. X.; Chen, C.; Shao, Y.; and Wang, J.. “Fama-French in China: Size and Value Factors in Chinese Stock Returns.” International Review of Finance, 19 (2019), 3–44.CrossRefGoogle Scholar
Irvine, P.; Lipson, M.; and Puckett, A.. “Tipping.” Review of Financial Studies, 20 (2006), 741–768.Google Scholar
Ivković, Z., and Weisbenner, S.. “Local Does as Local Is: Information Content of the Geography of Individual Investors’ Common Stock Investments.” Journal of Finance, 60 (2005), 267–306.CrossRefGoogle Scholar
Kirk, M. P., and Markov, S.. “Come on Over: Analyst/Investor Days as a Disclosure Medium.” Accounting Review, 91 (2016), 1725–1750.Google Scholar
Lee, C. M.; Qu, Y.; and Shen, T.. “Reverse Mergers, Shell Value, and Regulation Risk in Chinese Equity Markets.” Stanford University Graduate School of Business Research Paper No. 17–63 (2017).CrossRefGoogle Scholar
Liu, S.; Dai, Y.; and Kong, D.. “Does It Pay to Communicate with Firms? Evidence from Firm Site Visits of Mutual Funds.” Journal of Business Finance & Accounting, 44 (2017), 611–645.CrossRefGoogle Scholar
Liu, J.; Stambaugh, R. F.; and Yuan, Y.. “Size and Value in China.” Journal of Financial Economics, 134 (2019), 48–69.CrossRefGoogle Scholar
Malloy, C. “The Geography of Equity Analysis.” Journal of Finance, 60 (2005), 719–755.CrossRefGoogle Scholar
O’Brien, P. C., and Bhushan, R.. “Analyst Following and Institutional Ownership.” Journal of Accounting Research, 28 (1990), 55–76.CrossRefGoogle Scholar
Pool, V. K.; Stoffman, N.; and Yonker, S. E.. “No Place like Home: Familiarity in Mutual Fund Manager Portfolio Choice.” Review of Financial Studies, 25 (2012), 2563–2599.CrossRefGoogle Scholar
Schumacher, D. “Home Bias Abroad: Domestic Industries and Foreign Portfolio Choice.” Review of Financial Studies, 31 (2017), 1654–1706.Google Scholar
Solomon, D., and Soltes, E.. “What Are We Meeting For? The Consequences of Private Meetings with Investors.” Journal of Law and Economics, 58 (2015), 325–355.Google Scholar
Soltes, E. “Private Interaction between Firm Management and Sell-Side Analysts.” Journal of Accounting Research, 52 (2014), 245–272.CrossRefGoogle Scholar
Teo, M. “The Geography of Hedge Funds.” Review of Financial Studies, 22 (2009), 3531–3561.Google Scholar
Van Nieuwerburgh, S., and Veldkamp, L.. “Information Immobility and the Home Bias Puzzle.” Journal of Finance, 64 (2009), 1187–1215.Google Scholar
Van Nieuwerburgh, S., and Veldkamp, L.. “Information Acquisition and Under-Diversification.” Review of Economic Studies, 77 (2010), 779–805.Google Scholar
Supplementary material: PDF

Chen et al. supplementary material

Chen et al. supplementary material

Download Chen et al. supplementary material(PDF)
PDF 299.4 KB