Who Benefits from Corporate Opacity? International Evidence from Informed Trading by Institutional Investors

Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firmand country-level measures of the availability of financial reporting information, experience more privately-informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country-level disclosure infrastructures are less developed, when competition for private information is restricted and for those investors for whom the incentives and opportunities to acquire private information are greatest. A difference-in-differences analysis of returns earned by institutions across opaque and transparent firms suggests these results are economically significant. ______________________________________ This paper has benefited tremendously from the guidance and support of my dissertation committee members: Mark Lang (advisor), Jeff Abarbanell, Robert Bushman, Wayne Landsman and Christian Lundblad. I am also grateful for helpful comments from S.P. Kothari (editor), Brian Bushee (JAE discussant), an anonymous reviewer, Dan Amiram, John Gallemore, Joseph Gerakos, John Hand, Justin Hopkins, Susan Hughes, Andrew Karolyi, Ed Maydew, Katie McDermott, Derrald Stice and seminar participants at the 2011 Journal of Accounting & Economics Conference, the 2011 American Accounting Association Annual Meeting, the University of North Carolina at Chapel Hill and Wake Forest University. I would also like to thank Reena Aggarwal for sharing international corporate governance data. I gratefully acknowledge funding from the Deloitte Foundation, the State Farm Companies Foundation and the AAA/Grant Thornton Doctoral Dissertation Award. E-mail correspondence to [email protected].