Do Improvements in the Information Environment Enhance Insiders’ Ability to Learn from Outsiders?

47 Pages Posted: 1 Apr 2015

See all articles by Gilberto R. Loureiro

Gilberto R. Loureiro

University of Minho - School of Economics and Management

Alvaro G. Taboada

Mississippi State University

Multiple version iconThere are 2 versions of this paper

Date Written: March 31, 2015

Abstract

We examine whether and how an exogenous shock to the information environment enhances insiders’ ability to learn from outsiders using the mandatory adoption of IFRS as our information shock. We find an increase in investment-to-price sensitivity post-IFRS that is concentrated in firms that experience significant increases in foreign institutional ownership around IFRS adoption, especially when foreign investors are from countries that matter for firms’ growth opportunities. We further document an increase in the ability of the market reaction to M&A deal announcements to predict deal completion post IFRS, especially for deals in which the market is likely to have information that is new to insiders. Our results suggest that insiders’ ability to learn from outsiders improves post-IFRS. Finally, we find improvements in post-acquisition performance post-IFRS for deals in which learning is more likely to take place, which suggests that insiders’ enhanced ability to learn from outsiders yields real economic gains.

Keywords: Investment-to-price sensitivity, informational feedback effect, stock price informativeness

JEL Classification: F30; G30; M40

Suggested Citation

Loureiro, Gilberto R. and Taboada, Alvaro G., Do Improvements in the Information Environment Enhance Insiders’ Ability to Learn from Outsiders? (March 31, 2015). Available at SSRN: https://ssrn.com/abstract=2587836 or http://dx.doi.org/10.2139/ssrn.2587836

Gilberto R. Loureiro

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351-253-605553 (Phone)
+351-253-601380 (Fax)

Alvaro G. Taboada (Contact Author)

Mississippi State University ( email )

310-H McCool Hall
PO Box 9580
Mississippi State, MS 39762
United States
662-325-6716 (Phone)
662-325-1977 (Fax)

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