Does Limited Attention Constrain Investors' Acquisition of Firm‐specific Information?. (November 2014)

• Record Type: Journal Article
• Authors: Dong, Yi; Ni, Chenkai
• Is Part Of: Journal of business finance & accounting. Volume 41:Number 9/10(2014)
• Page Start: 1361
• Page End: 1392
• Publication Date: 2014-11
• Subjects: Finance -- Periodicals; Accounting -- Periodicals; Business -- Periodicals; 658.15
• DOI: 10.1111/jbfa.12098
• Languages: English
• ISSNs: 0306-686X

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>According to the framework outlined in Peng and Xiong (<xref ref-type="link" rid="jbfa12098-bib-0032">2006</xref>), attention‐constrained investors tend to process more market‐ and sector‐level information. We empirically test this theory. We find that firms with higher media coverage have lower contemporaneous stock return synchronicity. Such an effect is robust to analyses within size deciles, inclusion of firm fixed effects, estimation using a matched sample, and a two‐stage least squares approach. The effect becomes less pronounced during the financial crisis period when both the quantity and quality of firm‐specific information decrease. Further, the attention from media coverage has a spillover effect on the firm's industry peers without media coverage. Finally, investors of firms with higher media coverage are more efficient in incorporating future firm performance into current stock prices. Collectively, our findings support the theory in Peng and Xiong (<xref ref-type="link" rid="jbfa12098-bib-0032">2006</xref>) that investors increase their acquisition of firm‐specific information when a firm captures their attention.</p> </abstract>