We investigate the relationship between the ownership structure and returns of firms on days when the absolute value of the market's return is two percent or more. We find that a firm's abnormal return on these days is related to the percentage of institutional ownership, that there is abnormally high turnover in the firm's shares on these days, and that this abnormal turnover is significantly related to the percentage of institutional ownership in the firm. Taken together, these results are consistent with positive feedback herding behavior on the part of some institutions, particularly mutual and pension funds.

From 1986 to 1993, the United Shareholders Association (USA) provided a conduit through which small shareholders could unite and attempt to influence the governance of large US corporations. We show that the USA targeted large firms that underperformed the market, that its influence increased from 1990 to 1993, and that USA-Sponsored proposals were more successful when the target firm was a poor performer with high institutional ownership. The announcement of 53 USA-negotiated agreements is associated with an average abnormal return of 0.9% or a total shareholder wealth gain of $1.3 billion, suggesting that USA-sponsored shareholder activism enhanced shareholder value.

We examine whether institutional ownership composition is related to parameters of the market reaction to negative earnings announcements. When firms report earnings below analysts' expectations, the stock price response is more negative for firms with higher levels of ownership by momentum or aggressive growth investors. There is no evidence, however, that these institutions cause an “overreaction” to earnings news. Ownership structure is also related to trading volume and to stock price volatility on days around earnings announcements. Our findings are consistent with the idea that the composition of institutional shareholders effects stock price behavior around the release of corporate information.

The positive market reaction associated with an ADR listing is frequently attributed to a reduction in market segmentation costs that improves access to capital. If so, the benefit should be greatest for ADR firms that face relatively high indirect barriers to capital access. Our paper directly tests this supposition. We document that, following a U.S. listing, the sensitivity of investment to free cash flow decreases significantly for firms from emerging capital markets, but does not change for developed market firms. Further, emerging market ADR firms mention the need for access to external capital markets in their filing documents more frequently than their developed market counterparts and, in the post-ADR period, tout their liquidity rather than a need for capital access. Finally, the increase in capital access following an ADR is more pronounced for firms from emerging markets. Our findings suggest that greater access to external capital markets is an important benefit of a U.S. stock market listing for emerging market firms and is less important for developed market firms.