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Are institutional investors informed? The case of dividend changes for REITS and Industrial Firms


Prior evidence on whether institutions are informed about dividend changes is mixed. We contribute to this debate by examining institutional trade around dividend changes by industrial firms and REITs. The unique features of REITs, which make them more transparent than industrial firms, present an opportunity to compare institutional trade around dividend changes by the two groups of firms and discern whether institutions are informed about dividend changes by the industrial firms. Using both univariate and multivariate difference-in-differences mean tests, we find that abnormal institutional volume is higher when industrial firms change dividends than when REITs do so. This is consistent with the higher information asymmetry associated with dividend changes by industrial firms, suggesting institutions trade more upon arrival of the more informative dividend changes by the industrial firms. Further, the observed higher abnormal institutional volume is non-directional, and institutional buys offset institutional sales after both dividend increases and reductions by the industrial firms. The higher abnormal institutional volume and the non-directional nature of the abnormal volume suggest that institutions, on average, are not as informed about dividend changes by the industrial firms as they are about the same events by REITs due to their transparent nature. Thus, we uncover new evidence that institutions are not informed about dividend changes by industrial firms.

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  1. However, the exact information that they convey is actively debated. Dividend signaling theories (e.g., Miller and Modigliani 1961; Bhattacharya 1979 and John and Williams 1985) suggest that a change in dividend conveys managerial information about the firm’s future earnings. More recent studies (e.g., Benartzi et al. 1997 and Koch and Sun 2004) suggest that the dividend events convey managerial information about the permanence of the current earnings change.

  2. According to the Securities and Exchange Commission (SEC), to qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

  3. For example, at least 75% of gross income must be derived from rents, interest on obligations secured by mortgages, gains from sale of certain assets or income attributable to investments in other REITS.

  4. Some models suggest public announcements exacerbate information heterogeneity since private information can lead to information interpretation advantage (e.g., Kim and Verrecchia 1994, 1997), motivating trade after the news. Like prior studies, we do not focus on this type of private information due to the difficulty of separating trade after a public announcement into trade motivated by information interpretation advantage and other trades. Thus, like others, our assessment of institutional private information is based on the behavior of informed traders in models that predict public announcements reduce information heterogeneity (e.g., Kyle 1985).

  5. Hayunga and Stephens (2009) report a muted response to dividend changes by REITs than non-REITs and Blua et al. (2011b) report that REITs see economically significant short-selling activity, but this is statistically lower than that for non-REITs.

  6. Baker et al. (2009) report that mutual fund trades forecast earnings surprise. In comparison, Daske et al. (2005) find no evidence that short sales transactions concentrate around earnings announcements.

  7. They argue that institutions with small stake cannot justify the fixed cost of developing private pre-disclosure information. Similarly, institutions with large stake are dedicated investors or face regulation that make informed trading difficult.

  8. The proprietary institutional trading data are provided by the Ancerno Corporation (formerly, Abel Noser). This database contains extensive information on institutional orders such as order quantity, order price, code number of broker(s) used to fill the order, transaction price, quantity of shares traded, execution date, buy vs. sell order indicator, and commissions charged by the broker. Ancerno provides consulting and advisory services to about 1000 domestic institutional clients which includes pension plan sponsors such as CalPERS, the Commonwealth of Virginia, and the YMCA retirement fund, as well as money managers such as Massachusetts Financial Services (MFS), Putman Investments, and Lazard Asset Management. Institutions included in the Ancerno dataset collectively transacted over $30 trillion during our sample period of 2001–2012. For a detailed description of the data, please see Puckett and Yan (2011).

  9. We use two-digit SIC code to identify an industry in our matching exercise.

  10. When using log of market capitalization instead of the book value of total assets, the results are similar.

  11. While the median test is significant for days 0 and + 1 for all dividend changes and dividend increases, firms that cut dividends see significant medians on days 0, + 1 and + 2.

  12. The regulation stipulates that if a firm discloses any material nonpublic information to a limited group of individuals, the firm must also make public disclosure of that information. Such disclosures must be simultaneously made if it is intentional. A non-intentional disclosure to a limited group of individuals must be promptly followed by a public disclosure.

  13. We thank the referee for this suggestion.

  14. The results are not tabulated and are available upon request.

  15. The results using subsample analysis of investor type should be interpreted with caution as the sample size is dramatically reduced in the sub-sample analysis.

  16. Our original propensity score matching is based on firm size, debt-to-assets, cash-to-assets, dividend yield, share volume, industry and year.


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Correspondence to Mark Sunderman.

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Asem, E., Baulkaran, V., Jain, P. et al. Are institutional investors informed? The case of dividend changes for REITS and Industrial Firms. Rev Quant Finan Acc 58, 1685–1707 (2022).

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  • Dividends
  • REITs
  • Institutional Investing
  • Information Asymmetry

JEL Classification

  • G23
  • G35
  • R30