Do Institutional Investors Demand Public Disclosure?

Andrew Bird and Stephen A. Karolyi

May 12, 2016

Abstract

We examine the eect of institutional ownership on corporate disclosure policy using a re-
gression discontinuity design. Using novel data that encompasses every 8-K filing between 1996
and 2006, we find that positive shocks to institutional ownership around Russell index reconsti-
tutions increase the quantity, form, and quality of disclosure. Compared to those at the bottom
of the Russell 1000 index, firms at the top of the Russell 2000 index increase institutional
ownership by 9.8%, and disclose 4.7% longer 8-K filings with 21.3% more embedded graphics.
This incremental disclosure significantly increases the information content of 8-K filings for the
market and for analysts.

We thank Alan Crane, Todd Gormley, Ruihao Ke (discussant), Diana Knyazeva (discussant), Andy Koch, Paul
Ma, Sebastien Michenaud, Marina Niessner, Tom Ruchti, Mani Sethuraman, and American Accounting Association
2015 Annual Meeting and Financial Management Association 2015 Meeting attendees for valuable comments and
discussion. All remaining errors are ours.

Tepper School of Business, Carnegie Mellon University. Address: Posner Hall, 5000 Forbes Ave, Pittsburgh, PA,
USA, 15213.
1. Introduction

Do institutional investors demand corporate disclosure? A central question in finance and account-

ing is whether corporate transparency benefits or hurts investors. This issue is complicated by the

fact that information provision could impact groups of investors dierentially. Public information

may crowd out the private information advantage of some institutional investors (Gao and Liang

[2013], Armstrong et al. [2012]); alternatively, investors, particularly those following more passive

trading strategies, may not be information sensitive. However, even passive institutional investors

may benefit from an increase in monitoring by other stakeholders following improved disclosure

(Bens [2002]). Further, regardless of the preferences of institutional investors, whether or not they

are able to aect corporate policy on this margin is unclear. This tradeo is reflected in mixed

empirical evidence on the relationship between institutional ownership and corporate disclosure

(Ajinkya et al. [2005], Bushee et al. [2003], Bushee and Noe [2000], Healy et al. [1999], OBrien and

Bhushan [1990]).

To address this tradeo faced by institutional investors, we analyze the revealed preference

for corporate disclosure by institutional investors and the associated impact on the information

content of corporate disclosure. Empirically, identifying a causal eect of institutional ownership

on corporate disclosure policy is difficult because experimental settings and direct measures of

corporate disclosure quantity and characteristics are scarce. We propose a two part solution to these

problems. First, we utilize exogenous changes in institutional ownership around Russell 2000 index

reconstitutions in a regression discontinuity design to identify the eect of institutional ownership on

corporate disclosure policy. Second, we directly measure the characteristics of corporate disclosure

using a novel data set comprised of all 8-K filings between 1996 and 2006.

Russell index membership satisfies the key aspects of a regression discontinuity design because

1
membership is based on the end of May closing-price implied market capitalization rank. While

these market capitalization rank cutos are public knowledge and consistent through time, the

underlying market capitalization cutos are time-varying and depend on the cross-sectional distri-

bution of market capitalization at the end of the last trading day in May. Firms in the top 1000

ranked market capitalization on that day become members of the Russell 1000 and the subsequent

2000, those ranked between 1001 and 3000, comprise the Russell 2000. Therefore, especially close

to these market capitalization rank thresholds, Russell index reconstitutions are quasi-random with

respect to corporate policies. Because the indexes are value-weighted, the largest firms in the Rus-

sell 2000 receive weights which are 10-15 times larger than do the smallest firms in the Russell 1000,

even though they are similar in size (Appel et al. [2016], Chang et al. [2015]). Since these indexes

are widely used as performance and portfolio benchmarks by institutional investors, this dierence

in weights leads to significant dierences in institutional ownership between firms at the bottom of

the Russell 1000 relative to those at the top of the Russell 2000.

This experimental setting and novel data provide a platform to contribute to our knowledge

about institutional investor demand for corporate disclosure along the dimensions of quantity, form,

and quality. Our goal is to estimate the eect of an exogenous shock to institutional ownership

on corporate disclosure policy. We find that Russell 2000 inclusion has a positive impact on the

quantity of disclosure. Relative to firms just excluded from the Russell 2000 index, firms just

included disclose 1.7% more 8-K filings and 2.0% more items per 8-K filing. These results suggest

that institutional investors demand more corporate disclosure and that this preference is successfully

reflected in terms of incremental disclosure by firms.

We argue that this change in disclosure cannot be explained by increases in corporate operating

activity that require mandatory disclosure for two reasons. First, the content of each distinct

disclosure increases. Specifically, the 8-K filings of firms just on the Russell 2000 side of the

2
1000/2000 threshold are 4.7% longer, as measured by the number of characters in the filing, and

include 21.3% more embedded graphics and 1.4% more exhibits compared to firms on the Russell

1000 side. Second, we find that Russell 2000 inclusion also has a positive impact on the quality

of disclosure. The information content of 8-K filing announcements, as measured by absolute

cumulative abnormal returns (CAR), increases by a factor of 1.46, on average. Not only does the

amount of disclosure increase, but this information is valuable to capital market participants.

Furthermore, this average increase in stock return reaction is directly related to the increase in

length, embedded graphics, and exhibits per 8-K filing. We first examine the relationship between

8-K characteristics and absolute CARs to document the importance of these characteristics. We find

that the length and the number of items, graphics, and exhibits are all economically and statistically

significant in explaining equity market reactions to 8-K filings. This result complements Lerman

and Livnat [2010], which documents the information content of distinct item categories in 8-K

disclosures. To control for the information content of dierent 8-K items, we include indicator

variables for each item type and find that the information content of the length, graphics, and

exhibits increases even within 8-K item types.

After controlling for these 8-K characteristics and the interaction of these 8-K characteristics

with institutional ownership, the impact of Russell 2000 inclusion itself on absolute CARs is not as

economically or, in some specifications, statistically significant. However, the interaction terms have

statistically and economically significant positive eects, suggesting that the increase in the infor-

mation content of 8-K filings is explained by the change in disclosure characteristics. For example,

each additional embedded graphic corresponds to a 10.5 basis point increase in absolute CARs, on

average. These results suggest that the increase in the information content of 8-K announcements is

a result of changes in disclosure quantity and form, rather than index-membership-induced changes

in investor attention.

3
 To further abstract away from the potential market microstructure eects of Russell 2000 index

inclusions (Chang et al. [2015]), we focus on two alternative measures to test for changes in the in-

formation content of 8-K filings. These measures are based on equity analyst forecast accuracy and

forecast revisions, which provide real outcomes that are directly related to information revelation.

Without new valuable information, analysts have no reason to revise their forecasts. Similarly,

incremental disclosure of valuable information should allow analysts to make more accurate fore-

casts. Our analyst results are in line with our results on equity market reactions to 8-K filings.

On average, the consensus forecast deviation from actual earnings-per-share (EPS) of firms just

included in the Russell 2000 index decreases by 16.2% relative to those just excluded. Similarly,

the number of forecast revisions per broker in the five days following an 8-K filing increases by

59.1% for firms just included in the Russell 2000 index relative to those just excluded. Using the

same interaction methodology as in the absolute CARs tests, we find that the increases in analyst

forecast accuracy and forecast revisions are directly related to the increase in length, embedded

graphics, and exhibits per 8-K filing. These results suggest that equity analysts react to the change

in disclosure by making more forecasts and also more accurate forecasts.

Broadly speaking, one can view this set of results as illuminating the governance preferences

of institutional investors. As a component of governance, disclosure is unique both because it

has important feedback eects on other components of governance by empowering all shareholders

with decision-relevant information and because it impacts allocative efficiency.1 Previous papers

that focus on the governance eects of institutional investors using the Russell index reconstitution

setting do not address the information content of disclosure. This result alone demonstrates that

institutional investors demand and aect the public dissemination of decision-relevant information.

That is, we observe both that governance aects disclosure policy, and that disclosure policy then
1
Increasing transparency changes investor allocations and therefore directs corporate investment toward ex ante
higher NPV projects. See Healy and Palepu [2001] for further discussion.

4
aects investment decisions. Because the investment decisions in response to the disclosure are not

likely being made by the same investors that benchmark to the Russell indexes, we can infer that

the incremental information has reached its target audience and that the institutional investors

that enacted the change in disclosure policy must benefit indirectly from the incremental disclosure

that they eected.

Trading in response to Russell index reconstitutions is a result of benchmarking behavior, so

our inferences about the governance and disclosure preferences of institutional investors relate to

institutional investors that benchmark to the Russell indexes. Because both active and passive

investors, as traditionally defined (Bushee [2001]), may use the Russell indexes as portfolio bench-

marks, the Russell index reconstitution setting identifies the governance and disclosure preferences

of a mix of active and passive investors. However, as defined in Cremers and Petajisto [2009], an

important characteristic of institutional investors is their place on the benchmarking continuum,

which has a lower bound of pure indexing (i.e., no active positions that distinguish portfolio hold-

ings from the benchmark index). Because investors that are close to the pure indexing extreme of

the benchmarking continuum are the most likely to respond to Russell index reconstitutions, we

view our results as reflecting the disclosure preferences of relatively passive investors.

We believe that a key contribution of the literature that exploits Russell index reconstitutions

for identification is the finding that investors making relatively passive portfolio decisions may be

active in governance (Appel et al. [2016], Crane et al. [2016]). In general, this result highlights

the importance of share price maximization even for investors that do not make active portfolio

decisions. Disclosure can benefit benchmarking investors through governance mechanisms, but

benchmarking investors can also benefit from increased public disclosure because public disclosure

increases liquidity,2 which decreases transaction costs and reduces tracking error. Using the same
2
Schoenfeld [2015] finds that disclosure increases stock liquidity by studying S&P 500 index changes.

5
Russell reconstitution setting, two existing papers highlight mechanisms through which passive

institutional investors may eect changes in corporate governance. Consistent with the stated

governance objectives of large passive institutional investors3 , Appel et al. [2016] provide evidence of

increases in the number of independent directors, reductions in the use of poison pills and restrictions

on shareholders ability to call special meetings, diminished use of dual-class share structures,

and less support for management proposals. Crane et al. [2016] also document a discontinuity in

voting participation at the Russell 1000/2000 index threshold, supporting the notion that these

institutional investors are not simply passive stakeholders from a governance perspective.

A contemporaneous paper, Boone and White [2015], investigates the relationship between in-

stitutional ownership and managerial guidance, a measure of voluntary disclosure, focusing on the

eects of managerial guidance on market microstructure. Relative to that paper, we show not only

that positive shocks to institutional ownership increase disclosure along the intensive margin of

mandatory disclosure through 8-K filing frequency and characteristics, but also that the informa-

tion content and consequences of these disclosures increase. Moreover, the nature of any interaction

between managerial guidance and mandatory corporate disclosure is unclear (Li and Yang [2015],

Ball et al. [2012], Einhorn [2005], Verrecchia [1983]), and so we check our results for robustness to

any attenuation bias due to the potentially complementary relationship between the two forms of

disclosure. Our results are robust to excluding variation from 8-Ks that are likely to contain in-

formation related to managerial guidance, which suggests that any relationship between voluntary

and mandatory disclosure in this setting must be weak.

The rest of the paper is organized as follows. Section 2 describes the data and sample selection.

Section 3 discusses measurement and identification using Russell index reconstitutions. Section 4

analyzes the consequences of disclosure using equity market and analyst reactions to 8-K filings,
3
Vanguard, 2014, Our views on corporate governance, https://about.vanguard.com/vanguard-
proxyvoting/corporate-governance/.

6
Section 5 discusses subsample and specification robustness and Section 6 concludes. Supplementary

results are presented in the Appendix.

2. Data

Our empirical methodology depends upon changes in Russell 2000 index membership over time.

Two approaches have been used in the literature to identify these index membership lists. Because

the Russell 1000 and 2000 indexes are explicitly determined by market capitalization rank as of

the last trading day in May each year, the index memberships can be constructed using CRSP;

we use these observed market capitalization rankings in our main results.4 An important caveat

to this identification approach is that Russell changed their indexing methodology in 2007 by

introducing banding. The banding policy smoothes over changes in index membership because

it allows firms that should be excluded from the indexes to remain members if they are close to

the observed market capitalization rank threshold. Because of this index methodology change and

the introduction of consistent and recoverable 8-K filings, we restrict our sample period to begin in

1996 and end in 2006.

To address the question of whether institutional investors demand corporate disclosure, we must

construct proxies for the quantity and characteristics of corporate disclosure. We do this in two

ways. First, we rely on prior literature to construct measures of financial reporting quality (Beatty

et al. [2010]), auditor choice (Behn et al. [2008], Khurana and Raman [2004]), adverse auditor

opinions (Li et al. [2010], Ashbaugh-Skaife et al. [2009]), and accruals management (Demerjian

et al. [2012], Yu [2008], Bergstresser and Philippon [2006]). These variables are readily constructed

from Compustat data. These variables are Big4i,t , an indicator that equals one if firm i has a Big
4
We also obtain data from Russell on their end of June index ranks, which we use in robustness tests in Table 10.

7
Four auditor in year t and zero otherwise5 , AudSwitchi,t , an indicator that equals one if firm i

switches from any auditor to another in year t and zero otherwise, AdvOpinioni,t , an indicator that

equals one if firm is auditor issues an Adverse opinion on the eectiveness of the firms internal

control over financial reporting and zero otherwise, AbsAcci,t is firm is absolute value of accruals

scaled by total assets in year t, and AccQualityi,t is the measure of accounting quality proposed by

Beatty et al. [2010] for firm i in year t.

Table 1 presents summary statistics of these measures for firms in the Russell 1000 and Russell

2000 indexes along with accompanying tests of dierence in means between these two groups. These

univariate tests reveal that firms in the Russell 2000 are less likely to use a Big Four auditor, less

likely to receive an adverse opinion from their auditor, have higher absolute accruals as a fraction

of assets, and have lower accounting quality as measured by Beatty et al. [2010]. At the firm-year

level, 79.06% of Russell 1000 members use Big Four auditors compared to only 61.47% of Russell

2000 members.

To obtain more granular and detailed measures of corporate disclosure, we collect a dataset

of all 8-K filings between 1996 and 2006 that includes not only the number and timing of 8-K

filings, but also their characteristics. The SEC requires publicly traded companies to make 8-K

filings to report material events in a timely manner. Material events include entry into bankruptcy

or receivership, the acquisition or disposition of assets, a change of auditor, and the departure or

appointment of directors and executives, among others. Because the objective of the SEC is to

promote the full public disclosure of relevant company information, and the 8-K, or the current

report, has been the tool for firms to disclose timely information on important operational or

financial changes between periodic financial reports, we believe 8-K filings are an ideal and direct

measure of corporate disclosure.

5
We exclude Arthur Andersen from our Big4i,t measure because our sample period spans 1996 to 2006, including
the post-scandal period.

8
 To reflect the quantity of corporate disclosure, we construct variables based on the number

of 8-K filings, the length of each 8-K filing, the number and type of items reported in each 8-K

filing, the number of exhibits included in each 8-K filing, and the number of graphics used in

each 8-K filing. We posit that these variables reflect the quantity of corporate events disclosed as

well as disclosure methods. Given the information content of textual information in 10-K filings

(Loughran and McDonald [2011]), we expect the text in 8-K filings to include valuable information

for investors. Graphics are a salient feature of 8-K filings and we conjecture that they increase

the information content of disclosure because they ease the interpretation of textual or tabulated

information with visual representation. Similarly, because exhibits contained in 8-K filings include

press releases, contracts, and supplemental tabulated financial information, we expect them to have

information content for investors (Ma [2015]).

Table 2 presents summary statistics of these measures for firms in the Russell 1000 and Russell

2000 indexes along with accompanying tests of dierences in means between these two groups.

These univariate tests reveal that firms in the Russell 1000 do more disclosure than do firms in

the Russell 2000. At the firm-month and filing levels, Russell 1000 members disclose longer 8-K

filings and embed more graphics than Russell 2000 members. Per month, Russell 1000 members

disclose 1.76 8-K filings compared to 1.56 for Russell 2000 members, and these filings contain

relatively more graphics. These dierences in disclosure between Russell 1000 and Russell 2000

index members likely reflect dierences in observable firm characteristics, such as size, but also the

average level of institutional ownership, which is higher in the Russell 1000.

Finally, to determine whether changes in the quantity and characteristics of corporate disclosure

have consequences for the information content of disclosure, we rely on data from CRSP on stock

returns and trading volume and data from I\B\E\S on analyst forecast accuracy and revisions.

9
3. Index Reconstitutions, Institutional Ownership, and Disclosure

3.1 Identification

Our goal is to estimate the eect of an exogenous shock to institutional ownership on corporate

disclosure policy and the information content of disclosures. We do so using Russell index recon-

stitutions as natural experiments in a regression discontinuity design because index membership

is mechanicalit is based only on the size rank of firms, which is measured using closing market

capitalization on the last trading day in May. After the reconstitution, the one thousand largest

firms make up the Russell 1000, and the next two thousand largest firms make up the Russell 2000.

Because the underlying market capitalization thresholds vary according to the particular distribu-

tion of market capitalization across firms at that time, Russell index reconstitutions can be viewed

as quasi-random. Our empirical procedure involves a two-stage estimation. The first stage isolates

the variation in institutional ownership around the Russell 1000/2000 threshold, which is driven

by dierences in assets under management following the indexes and dierent index weights across

the indexes. The second stage connects this variation to changes in corporate disclosure policy.

Formally, we implement the regression discontinuity design with the following two-stage model:

IOi,t = + Di,t + f (Ri,t ) + Xi,t + vt + i,t (1)

Yi,t = 0 + c
1 IO i,t + g(Ri,t ) + 2 Xi,t + !t + "i,t (2)

where vt represents year-month fixed eects, Di,t is an indicator variable that equals one if firm

i is actually assigned to the Russell 2000 index in year t and zero otherwise,6 Ri,t represents the

observed market capitalization rank of firm i in year t minus 1,000, IOi,t represents the fraction

of firm i s shares outstanding owned by institutions in year t, and Yi,t represents measures of
6
We use actual index assignment to avoid measurement bias that arises with predicted index assignment (Crane
et al. [2016]).

10
financial reporting quality from the literature on corporate disclosure and based on our database

of 8-K filings. Xi,t includes a set of time-varying firm characteristics as controls. We include year-

month fixed eects to remove the possibility that the results are being driven by secular changes

in corporate disclosure or disclosure regulation.7 The functions f and g are parametrized as k-

order polynomials in the observed market capitalization ranking, Ri,t , on either side of the Russell

1000/2000 threshold. The parameter k is chosen to maximize the Bayesian information criterion

(BIC) as in Lee and Lemieux [2010].

A key methodological issue in estimating this system of equations is institutional ownership

classifications. We focus, like Crane et al. [2016], on total institutional ownership in our main

tests while another set of papers, including Boone and White [2015], restricts focus to quasi-index

investors as defined in Bushee [2001] or to passive mutual funds (Appel et al. [2016]). These ex ante

classifications all include investors that hold diverse portfolios with low turnover. We choose to focus

on total institutional ownership in our main tests because, independent of ex ante classifications,

any institutional investor that significantly responds to the Russell index reconstitutions is likely to

benchmark or track the Russell indexes.8 As a result, we view reconstitution-motivated reallocations

close to the index assignment threshold to be quasi-random for all types of institutional investors.

This perspective implies that excluding some investors based on ex ante classifications can induce

an omitted variables problem. This problem arises because excluded investors may use Russell

indexes as benchmarks, which would induce trading around reconstitutions, and may have similar

governance preferences and abilities to exact changes in corporate policies.9

7
All of the results that follow are robust to inclusion of firm fixed eects to mitigate selection on time-invariant,
unobservable firm characteristics. This further means that eects on disclosure are similar even when restricting the
identifying variation to come only from firms that switched indexes over the sample.
8
This perspective is consistent with cross-sectional evidence on active share in Cremers and Petajisto [2009].
9
In fact, Crane et al. [2016] find statistically significant and economically relevant evidence of a discontinuity in
other institutional ownership classifications around the same Russell index rank threshold. This evidence suggests
that the omitted variables problem induced by using ex ante investor classifications to exclude some institutional
investors produces bias in second stage estimates.

11
 While the extant papers that exploit the Russell index reconstitution setting eectively use the

same identifying variation, there are some remaining methodological dierences in implementation

(Appel et al. [2016], Boone and White [2015], Crane et al. [2016]). We provide additional discussion

of these alternative specifications in Section 5.2. In particular, we present the robustness of our main

findings to alternative specifications that incorporate alternative ex ante investor classifications,

running variables, and generally accepted regression discontinuity designs.

Intuitively, this system of equations ensures that the variation in institutional ownership that

we use to identify our coefficient of interest, 1, comes from Russell index reconstitutions. Because

the eect of index reconstitutions on disclosure policy operates through the institutional ownership

channel, we utilize an instrumental variables implementation of a regression discontinuity design.

Technically, the change in disclosure policy happens stochastically with respect to the threshold;

an observed change in disclosure policy around the rank threshold does not happen with certainty,

which is the dierentiating requirement that a sharp regression discontinuity design would require.

Our two stage least squares design in equations (1) and (2) means that Di,t can be interpreted

as an instrumental variable. Thus, the conditions for instrument validity must be satisfied. We

observe relevance in Panel A of Figure 1, which plots the discontinuity in institutional ownership

around the rank threshold of 1000. Firms just to the left of the rank threshold are included in the

Russell 1000 and firms just to the right of the threshold are included in the Russell 2000. Beyond

the statistical relevance of the the rank threshold, relevance is satisfied because of two institutional

features of the Russell indexes. First, approximately twice as much institutional investor money is

invested in the Russell 2000 compared to the Russell 1000 (Chang et al. [2015]). Second, Russell

indexes are value-weighted, meaning that a firm just included in the Russell 1000 index will have a

much lower index weight than a firm just excluded from the Russell 1000 index. These two features

suggest that the discontinuity in institutional ownership around the observed market capitalization

12
rank threshold of 1000 is a result of the Russell index methodology. Valid instruments must also

satisfy the exclusion criterion. In our case, exclusion is satisfied because other observables are locally

continuous at the rank threshold. That is, inclusion in the Russell 1000 or Russell 2000 should not

impact disclosure policy directly. Rather, its eect on disclosure policy exists only because of its

eect on institutional ownership.

Table 3 presents estimates of from equation (1) in which k = 0, 1, and 2 for parsimony.10 These

estimates are consistent with Crane et al. [2016] and Appel et al. [2016] in that we find strong

evidence of a discontinuity in institutional ownership around the Russell 1000/2000 threshold.11

Regardless of k, our estimates of the Russell 2000 inclusion eect on institutional ownership at the

Russell 1000/2000 threshold are statistically significant at least at the 5% level. For k = 2, the

polynomial form chosen by the BIC, we find that firms just included in the Russell 2000 index have

a 9.8% increase in institutional ownership relative to those just included in the Russell 1000 index.

3.2 Reporting Quality Measures from the Literature

Among the three groups of disclosure proxies, the first group includes variables derived from the

literature on financial reporting quality constructed using Compustat data from annual 10-K filings.

Table 4 presents evidence of the eect of institutional ownership on these variables. The estimation

results suggest that the average increase in institutional ownership associated with Russell 2000

inclusion causes a 3.3% increase in the probability of choosing a Big 4 auditor, a 2.4% marginal

increase in the probability of switching auditors, a 1.3% decrease in the probability of having

an adverse opinion, and 2.8% lower absolute abnormal accruals as a percentage of total assets.

Additionally, we find a statistically insignificant positive relationship between Russell 2000 index
10
We investigate up to k = 10 and find similar results.
11
Estimates in Crane et al. [2016] and Appel et al. [2016] appear to be quantitatively dierent, but mask the
dierence in base rates. Appel et al. [2016] restrict their sample to mutual fund ownership, which is a subset of total
2.4%
institutional ownership, and estimate a marginal eect of approximately 10% ( 25.2% ). Crane et al. [2016] use total
6%
institutional ownership and estimate marginal eects in the range of 10% to 16% ( 60% to 10%
60%
).

13
inclusion and accounting quality, as defined in Beatty et al. [2010]. Together, this evidence suggests

that, relative to firms just excluded, firms just added to the Russell 2000 index seek out new and

better auditors, are less likely to have adverse auditor opinions, and decrease their use of earnings

management. These findings are consistent with institutional owners preferring and bringing about

improvements in information quality.

3.3 Measuring Corporate Disclosure with 8-K Filings

The second group of measures are based on 8-K filings. For a panel of firm-year-month observations,

we track the number of 8-K filings in a given year-month, or N um8kF ilingsi,t , the cumulative

length of these filings, N umCharactersi,t , the number of separate items disclosed in these filings,

N umItemsi,t , the number of graphics provided in these filings, N umGraphicsi,t , and the number

of exhibits in these filings, N umExhibitsi,t . With these variables, our intention is to capture both

the quantity and the richness of each firms reporting environment, so that we can assess not only

how much but also what kinds of disclosures institutional investors demand from firms.

As a first step, we present smooth local polynomial plots in Panels B-D of Figure 1 to illustrate

the eect of index inclusion on these disclosure outcomes. In these figures, we can only interpret the

jump in disclosure around the rank threshold as a result of institutional ownership because we also

observe the discontinuity in institutional ownership at the rank threshold, which is shown in Panel

A of Figure 1, and because of the aforementioned features of the Russell indexes. These figures

show that Russell 2000 inclusion is associated with increases in the quantity of disclosure. When

we formally estimate this eect in Panel A of Table 5, we find that a 10% increase in institutional

ownership increases the number of 8-K filings by 0.37 per year, the length of filings by 60,609

characters per year, and the number of embedded graphics by 3.63 per year; the number of items

14
and exhibits increase by 0.67 and 0.42 per year, respectively.12 These estimates show that the

exogenous increase in institutional ownership at the Russell 2000 inclusion threshold is associated

with a higher quantity of corporate disclosure, as measured by the number of 8-K filings and the

content within these 8-K filings.

The third group of measures also use 8-K filings, but instead of focusing on absolute changes in

the characteristics of all filings within a given month, we focus on the changes per filing. This anal-

ysis provides evidence as to whether firms are changing the quantity of disclosure on the intensive,

as well as the extensive, margin.

The evidence in Panel B of Table 5 suggests that not only does the quantity of disclosure

increase, but also the amount of information contained in each filing increases for firms just added

to the Russell 2000 index relative to firms just excluded. The length of each filing increases by

4,181 characters, the number of items increases by 0.04, the number of graphics by 0.21, and the

number of exhibits by 0.01. These estimates are economically significant because they are close in

magnitude to the monthly results, and because they represent marginal increases on the order of

2% to 15%. In particular, the increases in the length and number of embedded graphics per filing

of approximately 12% and 15%, respectively, mean that the increase in corporate disclosure cannot

be fully explained by increases in the number of corporate events that involve mandatory disclosure

that may also be associated with increases in institutional ownership.

Table A2 of the Appendix investigates the time series properties of this change in 8-K filing

frequencies and amounts. We explore the potential for heterogeneous eects before and after the

passage of Regulation Fair Disclosure (Reg. FD). The results are uniformly larger economically,

but statistically dierent post-Reg. FD only for length and the number of graphics. If Reg.
12
We arrive at these estimates by multiplying the coefficients from Panel A of Table 5 by 10% to yield the per-month
change in 8-K filing characteristics, and then multiplying them by 12 to annualize the estimates. For example, the
coefficient on institutional ownership for the number of graphics regression is 3.0273. Thus, the per-month increase
in graphics is 0.30273, which, when annualized, yields an increase of 3.63276 graphics per year.

15
FD decreased the prevalence of private information, these results are consistent with institutional

investors incrementally demanding public disclosure to oset this lost private information channel.

We also test for dierences before and after 2004 when the SEC changed the structure of mandatory

8-K filings to make the item categorization system more granular. We find no economic or statistical

dierences across these two subperiods.

The results in the previous three tables are consistent with three inferences about institutional

investor demand for corporate disclosure. First, as a shock to institutional investor holdings, index

membership increases the quantity of corporate disclosures. Second, to the extent that Big Four

auditors have a better auditing technology, this shift in disclosure quantity is accompanied by

higher internal reporting scrutiny, evidenced by the switch to Big Four auditors and the drop in

adverse opinions. Third, the change in corporate disclosure policy is not restricted just to the

total quantity of information, but also the quantity of information per 8-K filing and variety of

information transmission tools utilized. This third inference is supported mainly by the results

presented in Panel B of Table 5, but also to a lesser extent by the traditional measures of reporting

quality in Table 4.

4. Consequences of Disclosure

4.1 Equity Market Reactions to Corporate Disclosure

In this section, we examine consequences of the shift in corporate disclosure policy due to institu-

tional investor demand. For this analysis, we focus on two dimensions: 8-K announcement returns

and trading volume. Because we are concerned with the eect of changes in corporate disclosure

on 8-K announcement returns, we focus on the magnitude of the 8-K announcement returns rather

than the direction. Thus, our first dependent variable of interest is abs(CARi,t ) the three day,

16
market-adjusted cumulative abnormal returns around firm i s 8-K announcement on date t.13 Our

second dependent variable of interest has to do with trading volume around the 8-K announcement

date. We construct ln AbnormalV olumei,t , the natural log of the three day, cumulative abnormal

trading volume of firm i s 8-K announcement on date t.14

To determine whether capital market participants care about the information contained in

8-K filings we first examine the relationship between abs(CARi,t ), AbnormalV olumei,t , and our

measures of 8-K filing characteristics. In the full sample of 1,373,778 8-K filings between 1996 and

2006, we estimate the following regression:

Yi,t = + Xi,t + ui + vt + i,t (3)

where ui and vt represent firm and year-month fixed eects, Yi,t represents abs(CARi,t ) or

ln AbnormalV olumei,t , and Xi,t represents a vector of 8-K filing characteristics that includes

N umCharactersi,t , N umItemsi,t , N umGraphicsi,t , and N umExhibitsi,t .

The results presented in Table 6 suggest that the characteristics of corporate disclosure have an

incremental relationship with the information content of 8-K filings. The length and the number

of items, graphics, and exhibits in 8-K filings are positively correlated with the magnitude of 8-K

announcement returns and abnormal trading volume. That the return response is increasing in

the number of items and exhibits is not surprising because each of these correspond to unique

information events. However, the positive relationship between the number of graphics, length,

and absolute CARs implies that the amount of information about each event and the graphical

presentation of information increases the information content of 8-K filings.15

13
In untabulated results using five day cumulative abnormal announcement returns, we find consistent results,
which suggests that the information is not simply being incorporated into prices more quickly due to dierential
investor attention.
14
Abnormal trading volume is defined as the residual from a regression of daily trading volume on firm-by-month
fixed eects. These residuals can be interpreted as the abnormal daily trading volume that cannot be attributed to
firm-specific factors that vary at the year-month frequency.
15
Appendix Table A1 replicates the results in Table 6 using day-of-week fixed eects. This alleviates the concern
that the information content of 8-K filing characteristics depends on strategic disclosure timing (Niessner [2015]).

17
 We next focus on the dierence in stock market reactions to 8-K announcements between firms

just included and excluded from the Russell 2000 index. Panel E of Figure 1 presents graphical

evidence of the eect of index inclusion on stock market reactions, which is suggestive of a significant

increase in reactions at the top of the Russell 2000. To formally test for this eect, we estimate the

following regression at the individual 8-K level:

Yi,t = + c
IO IO i,t + X Xi,t + ui + vt + i,t (4)

c i,t is the in-

where ui and vt represent firm and year-month fixed eects, respectively, IO

strumented institutional ownership of firm i in year-month t, and Yi,t represents abs(CARi,t ) or

ln AbnormalV olumei,t . Xi,t includes 8-K filing and firm characteristics as controls.

The previous model identifies the average eect of exogenous changes in institutional owner-

ship associated with Russell 2000 index inclusion on announcement returns and abnormal trading

volume. In the following model, we allow this average eect to vary with the change in corporate

disclosure policy found in Section 3. In the same sample of 8-K filings, we estimate:

Yi,t = + c
IO IO i,t + Z Zi,t + Interaction IOi,t
d
Zi,t + X Xi,t + ui + vt + i,t (5)

where Zi,t represents four measures that proxy for the breadth and depth of disclosure, ln N umCharactersi,t ,

N umItemsi,t , N umGraphicsi,t , and N umExhibitsi,t . In Panel A of Table 7, we present abs(CAR)i,t

coefficient estimates for IO , Z, and Interaction for each of the four proxies for breadth and depth

of disclosure. We instrument for the endogenous interaction term, IO d

Zi,t , by interacting Zi,t

j j
with Di,t , Ri,t , and Di,t Ri,t for each j chosen by the BIC in the first stage. Our estimates

show that increases in institutional ownership associated with Russell 2000 index inclusion lead to

increased information content in 8-K filings. Announcement returns increase in magnitude by 6.6

bps, on average. Furthermore, the estimation results reflect the two channels by which corporate

18
disclosure policy impacts the information content of 8-K filings. First, part of this increase in 8-K

announcement returns is due to changes in the amount of content included in each filing. The

interaction results suggest that the per-filing return reaction is smaller, on average, for firms just

included in the Russell 2000 index relative to those just excluded, but that the return reaction is

incrementally larger for filings with more information events. Second, the other part of the mag-

nitude increase in announcement returns is that the filings contain more content per information

event and more graphical content, reflected by the length and number of graphics, respectively.

For example, for an average increase in institutional ownership of 9.8%, each additional graphic is

associated with an additional 10.5 bps of return reaction.

We next investigate the incremental eect of Russell 2000 inclusion on abnormal trading vol-

ume around 8-K filings. In Panel B of Table 7, we present estimates for equations 4 and 5 with

ln AbnormalV olumei,t on the left hand side. These estimation results are consistent with the hy-

pothesis that, on average, inclusion in the Russell 2000 index increases the information content of

8-K filings. Abnormal trading volume increases by 2.9%, on average. As in the return reaction

test above, the results reflect the two channels by which corporate disclosure policy impacts the

information content of 8-K filings. Part of this increase in abnormal trading volume around 8-K

announcements is related to an increase in the number of information events contained in each filing

and part can be attributed to the increase in content per information event and graphical content.

Table A3 of the Appendix investigates the time series properties of this eect. We explore the

potential for heterogeneous eects before and after the passage of Regulation Fair Disclosure (Reg.

FD). The results are uniformly larger economically, but statistically dierent post-Reg. FD only

for selective measures. If Reg. FD decreased the prevalence of private information, these results are

consistent with private information crowding out or otherwise discouraging public disclosure. We

also test for dierences before and after 2004 when the SEC changed the structure of mandatory

19
8-K filings to make the items more granular and find that this change does not aect our inferences.

The results in this section provide causal support for the eect of two corporate disclosure

channels on equity market reactions to corporate disclosure. Combined with the results from

Section 3, these results suggest that exogenous increases in institutional ownership are related to

more corporate disclosure, higher quality corporate disclosure, and larger equity market reactions to

corporate disclosures. These larger reactions occur due to both changes in the number of corporate

events disclosed and the tools utilized to disclose information about corporate events. From these

results, we can infer that institutional owners demand greater corporate disclosure, which in turn

impacts equity market returns and trading volume around corporate announcements.

4.2 Analyst Forecasts and Revisions

Prior literature has argued that increases in corporate disclosure are reflected in analyst forecast

accuracy and revisions. Given our regression discontinuity setting, we can investigate the causal

eect of changes in corporate disclosure on analyst forecasts and revisions. Furthermore, because the

stock market results in the previous section are subject to market microstructure concerns related

to index inclusion, it is helpful to look at real outcomes, such as analyst forecast accuracy and

revisions, which are directly related to information revelation. Without new valuable information,

analysts have no incentive to revise their forecasts. Similarly, incremental disclosure of valuable

information should allow analysts to make more accurate forecasts.

In this section, we examine the eects of the shift in corporate disclosure policy due to institu-

tional investor demand on equity analysts. For this analysis, we focus on analyst forecast accuracy

and the number of forecast revisions per broker in response to 8-K filings. As in the previous sec-

tion, it is important to first establish that equity analysts condition on the information content of

8-K filings, so we start by examining the relationship between Deviationi,t , N umRevisionsi,t , and

20
our measures of 8-K filing characteristics. In the full sample of 1,373,778 8-K filings between 1996

and 2006, we again estimate equation (3), where Yi,t represents Deviationi,t or N umRevisionsi,t

and report estimation results in columns (5)-(8) of Table 6.

These results suggest that the characteristics of corporate disclosure have an incremental rela-

tionship with the information content of 8-K filings. The length, number of items, graphics, and

exhibits in 8-K filings are positively correlated with the number of forecast revisions per broker in

the five days after 8-K filings and negatively correlated with the absolute deviation of analyst EPS

forecasts to actual EPS realizations. On average, an additional graphic embedded in 8-K filings is

associated with a 1.6 cents smaller forecast deviation from actual EPS realizations and 0.026 more

forecast revisions per broker.

Having established that the characteristics of 8-K filings have information content for equity

analysts in the sense that their behavior is aected, we turn to the question of whether the index

inclusion shock to institutional ownership increases or decreases the incremental information content

of 8-K filings and their characteristics for equity analysts. Panel F of Figure 1 shows graphical

evidence that inclusion in the Russell 2000 significantly aects behavior. We estimate equation

(4) in the full sample of 59,247 firm fiscal quarters between 1996 and 2006 with analyst forecast

accuracy and revisions as the dependent variables of interest. Table 8 presents the estimation

results. The analyst response to 8-K filings is consistent with higher information content of these

filings for firms just added to the Russell 2000 index relative to those just excluded. On average, 8-K

filings of firms just added to the Russell 2000 index are associated with a 1.4 cent smaller deviation

from actual EPS realizations compared to firms just excluded. Because the average deviation from

actual EPS realizations is approximately 5.7 cents in our sample period, the average decrease 24.6%

of the mean. Similarly, on average, 8-K filings of firms just added to the Russell 2000 index are

associated with 0.32 more revisions per broker in the five days following the filing relative to firms

21
just excluded. Given that the average number of forecast revisions per broker in the five days

following 8-K filings is 0.72 during our sample period, this is an average increase of 44.4%.

The fact that the average equity analyst response to 8-K filings is larger for firms just on the

Russell 2000 side of the 1000/2000 threshold is consistent with institutional owners demanding more

informative corporate disclosures. We next investigate whether this increase in the information

content of corporate disclosures is directly related to the changes in disclosure characteristics that

we observe. Consistent with the equity market results in the previous section, we find that equity

analysts react to the incremental content per filing. We re-estimate equation (5) with analyst

forecast accuracy and revisions as the dependent variables of interest and show the estimation

results in Table 8. These results reveal that part of the average increase in analyst reactions to

8-K filing is due to changes in the amount of content disclosed in each filing. The interaction

results suggest that increases in institutional ownership are associated with larger per-filing analyst

reactions, and also that this reactions is incrementally larger for filings with more information events.

Moreover, analyst reactions also increase because filings contain more content per information event

and more graphical content, reflected by the length and number of graphics, respectively.

While analyst forecasts provide a measure to examine the index reconstitution-induced vari-

ation in the information content of 8-K filings which is less susceptible to market microstructure

changes, it does not come without potential confounds. In particular, analyst behavior can yield

potential alternative explanations of our results. The common theme of these alternatives is that

they depend upon equity analysts having a preference for public information. For example, because

analysts and institutional investors interact, the possibility exists that analysts demand disclosure

from firms as a mechanism to improve their service to institutional investor clients. This expla-

nation is consistent with the institutional investor monitoring mechanism we describe, but in this

explanation, it is proactive analysts that interact with corporations as agents of disclosure for their

22
institutional clients. We believe that these alternatives are unlikely given the growing set of ev-

idence that analysts do not prefer more public disclosure to less. Armstrong et al. [2012] show

that analyst following decreases in response to plausibly exogenous increases in financial statement

informativeness. In another setting, Xie [2013] shows that though analysts issue public forecasts

and recommendations, they provide additional private signals about these recommendations to

their best institutional clients, which suggests that analysts extract private information rents from

institutional investors. Similarly, Barth et al. [2001] show that analyst following is higher for firms

with more intangible assets, which provide more profitable opportunities for private information

collection.

The results in this section complement the equity market results in providing support for the

eect of corporate disclosure on the equity market and analyst reactions to corporate disclosure.

These results suggest that exogenous increases in institutional ownership are related to more cor-

porate disclosure, more transparent corporate disclosure, and larger equity market and analyst

reactions to corporate disclosures due to changes in the number of corporate events disclosed and

the tools utilized to disclose information about corporate events. From these results, we can in-

fer that institutional owners demand greater corporate disclosure, which in turn impacts equity

market returns, trading volume, analyst forecast accuracy, and forecast revisions around corporate

announcements.

5. Robustness

5.1 Alternative Explanations

Disclosure is subject to managerial discretion across many dimensions (e.g., materiality, timeliness,

content), which means that our inferences are subject to concerns about managerial intent and

23
discretion. For example, institutional investors could be encouraging incremental disclosure for

only certain types of information, such as earnings guidance (Boone and White [2015]). There is

also some evidence in the literature (e.g. Carter and Soo [1999]) that 8-Ks have not always been

filed in a timely manner, though these delays appear to have been mitigated by regulatory oversight

from the SEC by the start of our sample, and especially for filings under the new 8-K reporting

regime as of 2004. To mitigate remaining concerns about the timeliness and content-specificity of

8-K filings, we present a series of robustness tests to examine the sensitivity of the institutional

ownership eect that we document in previous sections to such heterogeneity.

Before discussing results from these subsample robustness tests, we note that inferences based

on our main specifications are unlikely to be significantly aected by timeliness or content. First,

aggregate trends in filing delays cannot explain our results because, by incorporating year fixed

eects, our tests exploit only cross-sectional variation in filing characteristics. Second, filing delays

should cause attenuation bias for our information content tests. If news gets disseminated to capital

markets before the filing, we should observe smaller market and analyst reactions around the 8-

K filings themselves. Third, while voluntary disclosure on earnings guidance has been studied

(Boone and White [2015]), substitution between 8-K filings and earnings guidance cannot explain

our results because we exploit only within-filing-type variation in all of our main specifications by

including filing type fixed eects. That is, earnings or financials-related 8-K filings are unlikely to

be driving our results because we explicitly control for cross-sectional dierences in the information

content of filing types.

To further address concerns regarding filing timeliness and content, we present additional find-

ings in Table 9 in which we augment our main tests of 8-K filing characteristics and information

content by interacting instrumented institutional ownership with dummy variables that identify

earnings-related filings (Item 2.02), filings from after the 8-K filing regime change (e.g., P ost2004),

24
and filings that contain negative news (e.g., N egativeN ews). Our results show that the interaction

terms of institutional ownership with the Item 2.02 dummy are not statistically or economically

significant. Hence, the institutional ownership eect on filing characteristics and information con-

tent is not systematically dierent for filings related to earnings, which implies that related findings

on managerial guidance (Boone and White [2015]) cannot explain our results. In untabulated tests,

we also drop all earnings-related filings and find similar results.

The literature has found that filing delays are most likely for filings that contain negative news

(Barth et al. [2015], Ma [2015]), so we investigate the institutional ownership eect on 8-K filings

that contain negative news in two ways. First, in untabulated results, we separately estimate

the filing characteristics and information content tests in the subsample of negative 8-K filings

(i.e., those that are met with a negative market reaction as measured by three day cumulative

abnormal returns) and find that the results are quantitatively similar in both subsamples. Second,

in Table 9, we present results from our tests that augment our baseline specifications by interacting

N egativeN ews with IO. These tests show that the eect of institutional ownership is significantly

larger for negative news for one of the five filing characteristics (e.g., N umItems, which may be

evidence of strategic bunching of dierent pieces of information) and two of the four information

content results (e.g., abs(CAR) and N umRevisions). The lower order IO terms remain statistically

and economically significant in all of these regressions, so we omit them in our presentation for

brevity. These results further suggest that timeliness is unlikely to be a significant driver of our

observed institutional ownership eect.

Finally, to investigate dierences in timeliness between the pre-2004 and post-2004 regime

change in 8-K filing rules, we present two sets of results. First, appendix tables A2 and A3 present

estimates of our main specifications in pre- and post-2004 subsamples. These results show that

the filing characteristics and information content results are economically and statistically similar

25
across Reg. FD and 8-K regime change sample splits. Second, to more rigorously explore dif-

ferences before and after the 2004 change in 8-K filing rules, we interact P ost2004 with IO and

present interaction coefficients in Table 9. These results show that none of the eects we study are

significantly dierent after 2004.

Together, we believe that this collection of results implies that dierential timeliness is not

significantly related to the institutional ownership-disclosure relationship we study, and that man-

agerial guidance about earnings, while related to a subset of 8-K filings, cannot explain the broader

eects of institutional ownership on disclosure.

5.2 Alternative Specifications

In the extant literature that exploits Russell index reconstitutions as an experimental setting, there

exist three primary econometric dierences in execution. These dierences are based on ex ante

institutional ownership classifications, Russell index ranks and definitions, and experimental proce-

dures relating to the Russell index discontinuity. In this section, we discuss Table 10, which provides

evidence that our disclosure results are generally robust to any combination of these alternative

specifications, including those prominently featured in the existing literature (Appel et al. [2016],

Boone and White [2015], Chang et al. [2015], Crane et al. [2016]). An additional potential concern

is whether Russells proprietary rank adjustments that occur between the end of May index assign-

ment and the end of June index reconstitution are related to changes in institutional ownership.

Russells adjustments are determined by several characteristics, one of which is the public float of

the firm. As in Crane et al. [2016] and Appel et al. [2016], we find that Russells rank adjustments

do not quantitatively aect our results. In Table 10, we also present results using observed market

capitalization ranks based on end of May end-of-day closing prices from CRSP (in columns (2), (4),

(6), and (8) titled May) and using Russells end of June rankings (i.e., columns (1), (3), (5), and

26
(7) titled June), which include their proprietary adjustments based on public float.

The first and most important distinction among existing Russell index reconstitution papers

is based on ex ante institutional ownership classifications. Whereas we focus, like Crane et al.

[2016], on total institutional ownership in our main tests, another set of papers, including Boone

and White [2015], focuses only on quasi-index investors (as defined in Bushee [2001]) or on passive

investors (Appel et al. [2016]). We focus on total institutional ownership to avoid the omitted

variables problem described in Section 3.1. Second, our focus on total institutional ownership

provides more conservative estimates of the marginal eect of institutional ownership on 8-K filing

characteristics and market reactions. We interpret these conservative estimates as being generally

consistent with the idea that large reduced-form variation in 8-K filing characteristics and market

reactions around the Russell index cuto can be explained by dierent magnitudes of variation in

institutional ownership. A back-of-the-envelope calculation illustrates our intuition. We observe a

9.8% increase in total institutional ownership and a 6% increase in quasi-indexer ownership (Crane

et al. [2016]) at the top of the Russell 2000 index relative to the bottom of the Russell 1000

index. If the cross-sectional variation in total institutional ownership and quasi-indexer ownership

around the Russell index threshold is highly correlated, then the coefficient estimates we should

expect in the quasi-indexer ownership specifications should be 9.8/6 = 1.63 times larger than

in the total institutional ownership specifications simply because the same change in disclosure

policies and market reactions are being explained by a smaller change in institutional ownership.

Importantly, because both quasi-indexers and other institutional ownership groups react to Russell

index reconstitutions, dierent institutional ownership measures simply attribute the same change

in 8-K filing characteristics and information content to dierent changes in institutional ownership.

To be conservative, we ascribe the change in 8-K filing characteristics and information content to

the entire change in institutional ownership. In both panels of Table 10, columns (1)-(4) focus

27
on total institutional ownership and columns (5)-(8) focus on quasi-indexers only. These results

suggest that our baseline results in Tables 5, 7, and 8 are robust to using ex ante institutional

investor classifications.

The second key point of dierentiation among existing papers that exploit the Russell index

reconstitution setting is related to the running variable definition in the regression discontinuity

design. In our baseline tests, we follow Crane et al. [2016], which uses observed market capitalization

rank as the running variable and constructs polynomial control functions based on these ranks. In

Table 10, we present alternative evidence using the methodology of Appel et al. [2016] that uses

ln M arket Cap. as the running variable. Despite the fact that Russell assigns firms to indexes

based on observed market capitalization ranks and not total market capitalization, the nonlinear

mapping between market capitalization and ranks may impose a misspecified control in tests that

use polynomial control functions based on observed market capitalization ranks. In both panels of

Table 10, columns (1), (2), (5), and (6) use polynomial control functions based on ln M arket Cap.

and columns (3), (4), (7) and (8) use polynomial control functions based on market capitalization

ranks. The results are quantitatively similar across measures, suggesting that market capitalization

rank polynomials are not misspecified.

The third key point that dierentiates existing work that uses the Russell index reconstitution

setting is the use of bandwidth restrictions. Whereas we use global polynomial control functions to

flexibly control for nonlinearities in the conditional expectation function of institutional ownership

and market capitalization, others, including Appel et al. [2016], impose a 250 firm bandwidth

and use local linear and polynomial control functions. Both methods are accepted in the applied

econometrics literature, but we favor global polynomial control functions to both preserve statistical

power and to avoid potential overfitting or lack of smoothness in the conditional expectations

function of institutional ownership on market capitalization at the boundary (Van der Klaauw

28
[2008]). We present results that use the global polynomials approach in Panel A of Table 10

and results that use the local polynomials approach in Panel B of Table 10. While the sign and

economic magnitude of our coefficient estimates are similar in Panel A and Panel B, the lack of

statistical power imposed by bandwidth restrictions is apparent in Panel B; fewer of the coefficient

estimates are statistically significant at conventional levels. Despite small dierences in statistical

significance, we view the results in Panel B as quantitatively similar to those in Panel A and, given

the degree of similarity, we infer that the global polynomial control functions used in Panel A must

appropriately isolate local dierences in institutional ownership and disclosure around the Russell

index cuto.

Together, the results in Table 10 suggest that the baseline results presented in Tables 5, 7,

and 8 are robust to the potential combinations of approaches used in the extant literature which

studies the Russell index reconstitution setting. In particular, these results are robust to alterna-

tive market capitalization definitions, polynomial control functions based on market capitalization

ranks or market capitalization itself, bandwidth restrictions, and ex ante institutional ownership

classifications.

6. Conclusion

In this paper, we study the preferences of institutional investors over corporate disclosure using novel

data on 8-K filings and an experimental setting that takes advantage of quasi-random Russell index

reconstitutions. Specifically, we estimate the causal eect of an exogenous shock to institutional

ownership on corporate disclosure policy, and then determine whether this change in corporate

disclosure has an incremental impact on equity analyst and stock market reactions to corporate

disclosures. We find that inclusion in the Russell 2000 has a positive impact on institutional

29
ownership relative to inclusion in the Russell 1000, which, in turn, has a positive impact on the

quantity of disclosure. Moreover, the dierence in disclosure quantity cannot be fully explained

by any change in corporate activity that requires mandatory disclosure because we find that the

amount of content per filing, as measured by items, exhibits, length, and embedded graphics, also

increases. These exogenous increases in institutional ownership also have positive eects on the

quality of disclosure. The average information content of 8-K filing announcements, as measured

by absolute cumulative abnormal returns (CAR), increases by a factor of 1.46. Furthermore, this

average increase in the stock price reaction is directly related to the increase in the length and

number of embedded graphics per 8-K filing. Together, these results suggest that institutional

investors demand incremental corporate disclosure and that such disclosure is informative and

relevant to capital market participants.

30
References
Bipin Ajinkya, Sanjeev Bhojraj, and Partha Sengupta. The association between outside direc-
tors, institutional investors and the properties of management earnings forecasts. Journal of
Accounting Research, 43(3):343376, 2005.

Ian Appel, Todd A. Gormley, and Donald A. Keim. Passive Investors, Not Passive Owners. Journal
of Financial Economics (forthcoming), 2016.

Christopher S. Armstrong, Karthik Balakrishnan, and Daniel Cohen. Corporate governance and
the information environment: Evidence from state antitakeover laws. Journal of Accounting and
Economics, 53(1):185204, 2012.

Hollis Ashbaugh-Skaife, Daniel W. Collins, William R. Kinney Jr., and Ryan Lafond. The eect of
SOX internal control deficiencies on firm risk and cost of equity. Journal of Accounting Research,
47(1):143, 2009.

Ray Ball, Sudarshan Jayaraman, and Lakshmanan Shivakumar. Audited financial reporting and
voluntary disclosure as complements: A test of the confirmation hypothesis. Journal of Account-
ing and Economics, 53(1):136166, 2012.

Mary E. Barth, Ron Kasznik, and Maureen F. McNichols. Analyst coverage and intangible assets.
Journal of Accounting Research, 39(1):134, 2001.

Mary E. Barth, Greg Clinch, and Paul Ma. Forecasts of earnings announcements: Evidence from
a mandatory regime. Working paper, 2015.

Anne Beatty, Scott Liao, and Joseph Weber. Financial reporting quality, private information,
monitoring, and the lease-versus-buy decision. The Accounting Review, 85(4):12151238, 2010.

Bruce K. Behn, Jong-Hag Choi, and Tony Kang. Audit quality and properties of analyst earnings
forecasts. The Accounting Review, 83(2):327349, 2008.

Daniel A. Bens. The determinants of the amount of information disclosed about corporate restruc-
turings. Journal of Accounting Research, 40(1):120, 2002.

Daniel Bergstresser and Thomas Philippon. CEO incentives and earnings management. Journal of
Financial Economics, 80(3):511529, 2006.

Audra L. Boone and Joshua T. White. The Eect of Institutional Ownership on Firm Transparency
and Information Production. Journal of Financial Economics (forthcoming), 2015.

Brian J. Bushee. Do Institutional Investors Prefer Near-Term Earnings over Long-Run Value?
Contemporary Accounting Research, 18(2):207246, 2001.

Brian J. Bushee and Christopher F. Noe. Corporate disclosure practices, institutional investors,
and stock return volatility. Journal of Accounting Research, pages 171202, 2000.

Brian J. Bushee, Dawn A. Matsumoto, and Gregory S. Miller. Open versus closed conference
calls: the determinants and eects of broadening access to disclosure. Journal of Accounting and
Economics, 34(1):149180, 2003.

Mary Ellen Carter and Billy S. Soo. The relevance of form 8-k reports. Journal of Accounting
Research, 37(1):119132, 1999.

31
Yen-Cheng Chang, Harrison Hong, and Inessa Liskovich. Regression discontinuity and the price
eects of stock market indexing. Review of Financial Studies, 28(1):212246, 2015.

Alan D. Crane, Sebastien Michenaud, and James P. Weston. The Eect of Institutional Ownership
on Payout Policy: Evidence from Index Thresholds. Review of Financial Studies (forthcoming),
2016.

KJ Martijn Cremers and Antti Petajisto. How active is your fund manager? A new measure that
predicts performance. Review of Financial Studies, 22(9):33293365, 2009.

Peter R. Demerjian, Baruch Lev, Melissa F. Lewis, and Sarah E. McVay. Managerial ability and
earnings quality. The Accounting Review, 88(2):463498, 2012.

Eti Einhorn. The nature of the interaction between mandatory and voluntary disclosures. Journal
of Accounting Research, 43(4):593621, 2005.

Pingyang Gao and Pierre Jinghong Liang. Informational Feedback, Adverse Selection, and Optimal
Disclosure Policy. Journal of Accounting Research, 51(5):11331158, 2013.

Paul M. Healy and Krishna G. Palepu. Information asymmetry, corporate disclosure, and the capital
markets: A review of the empirical disclosure literature. Journal of Accounting and Economics,
31(1):405440, 2001.

Paul M. Healy, Amy P. Hutton, and Krishna G. Palepu. Stock performance and intermediation
changes surrounding sustained increases in disclosure. Contemporary Accounting Research, 16
(3):485520, 1999.

Inder K. Khurana and KK Raman. Litigation risk and the financial reporting credibility of Big 4
versus non-Big 4 audits: Evidence from Anglo-American countries. The Accounting Review, 79
(2):473495, 2004.

David S. Lee and Thomas Lemieux. Regression discontinuity designs in economics. Journal of
Economic Literature, 48:281355, 2010.

Alina Lerman and Joshua Livnat. The new Form 8-K disclosures. Review of Accounting Studies,
15(4):752778, 2010.

Chan Li, Lili Sun, and Michael Ettredge. Financial executive qualifications, financial executive
turnover, and adverse SOX 404 opinions. Journal of Accounting and Economics, 50(1):93110,
2010.

Xi Li and Holly Yang. Mandatory Financial Reporting and Voluntary Disclosure: The Eect of
Mandatory IFRS Adoption on Management Forecasts. The Accounting Review, 2015.

Tim Loughran and Bill McDonald. When is a liability not a liability? Textual analysis, dictionaries,
and 10-Ks. The Journal of Finance, 66(1):3565, 2011.

Paul Ma. Information or spin? Evidence from language dierences between 8-Ks and press releases.
Working Paper, 2015.

Marina Niessner. Strategic Disclosure Timing and Insider Trading. Working Paper, 2015.

Patricia C. OBrien and Ravi Bhushan. Analyst following and institutional ownership. Journal of
Accounting Research, pages 5576, 1990.

32
Jordan M. Schoenfeld. Voluntary Disclosure and Liquidity: Evidence from Index Funds. Working
paper, 2015.

Wilbert Van der Klaauw. Regressiondiscontinuity analysis: a survey of recent developments in

economics. Labour, 22(2):219245, 2008.

Robert E. Verrecchia. Discretionary disclosure. Journal of Accounting and Economics, 5:179194,

1983.

Lei Xie. Call Your Clients First: An Examination of How Analysts Add Value to Their Fund
Clients. Working Paper, 2013.

Fang Frank Yu. Analyst coverage and earnings management. Journal of Financial Economics, 88
(2):245271, 2008.

33
 Figure 1. Discontinuities at the Russell 1000/2000 Threshold
The figures show the distribution of firm characteristics by observed market capitalization ranking.
The lines are drawn using a local polynomial smoother and the grey region represents a 90%
confidence interval. Note that the threshold between the Russell 1000 and the Russell 2000 occurs
at a rank of 1000.

2.4
.8

2.2
.7

Number of 8K Filings
Institutional Ownership

2
.6

1.8
.5

1.6
.4

1.4
0 500 1000 1500 2000 2500 3000
0 500 1000 1500 2000 2500 3000
Market Capitalization Rank Rank

A. Institutional Ownership B. Number of 8-K Filings

100000 120000 140000 160000

5
4
Number of Characters

Number of Graphics
3
2
80000
60000

0 500 1000 1500 2000 2500 3000 0 500 1000 1500 2000 2500 3000
Rank Rank

C. 8-K Filing Length D. Number of Graphics

.006

15
Analyst Forecast Revisions
.004
abs(Abnormal Returns)

10
.002

5
0

0
.002

0 500 1000 1500 2000 2500 3000 0 500 1000 1500 2000 2500 3000
Rank Rank

E. Information Content of 8-K Filings F. Analyst Forecast Revisions

34
 Table 1. Summary Statistics: Traditional Measures of Reporting Quality
This table provides firm-year level summary statistics for the firms in the Russell 1000 and Russell 2000 indexes between 1996 and 2006.
Big4i,t is an indicator variable that equals one if firm i uses a Big Four auditor in year t and zero otherwise. AudSwitchi,t is an indicator
variable that equals one if firm i uses a dierent auditor in year t than it did in year t 1 and zero otherwise. AdvOpinioni,t is an
indicator variable that equals one if firm is auditor issues an adverse opinion about in year t and zero otherwise. AbsAcci,t is the absolute
accruals scaled by total assets of firm i in year t. AccQualityi,t is an accruals-based measure of accounting quality proposed by Beatty
et al. [2010].

Russell 1000 Russell 2000 p-value

35
Mean SD 25% Median 75% Mean SD 25% Median 75% (dierence in means)
Big4i,t 78.54% 41.35% - - - 62.21% 47.91% - - - <0.01
AudSwitchi,t 15.34% 36.42% - - - 13.47% 35.08% - - - 0.426
AdvOpinioni,t 0.66% 7.58% - - - 1.21% 12.04% - - - <0.01
AbsAcci,t 11.05% 11.38% 4.51% 8.42% 13.85% 13.67% 14.83% 4.17% 9.52% 17.77% <0.01
AccQualityi,t 4.711 0.506 4.672 4.786 4.920 4.619 0.575 4.582 4.736 4.894 <0.01
 Table 2. 8-K Filings Disclosure Summary Statistics
This table provides firm-month and filing level summary statistics for the firms in the Russell 1000 and Russell 2000 induces between 1996
and 2006. N um8kF ilingsi,t is the number of 8-K filings that firm i releases in month t, N umCharactersi,t is the number of characters
in firm is 8-K filings in month t, N umItemsi,t is the number of items in firm is 8-K filings in month t, N umGraphicsi,t is the number
of embedded graphics in firm is 8-K filings in month t, and N umExhibitsi,t is the number of exhibits in firm is 8-K filings in month t.

Russell 1000 Russell 2000 p-value

Mean SD 25% Median 75% Mean SD 25% Median 75% (dierence in means)
Per Month:
N um8kF ilingsi,t 1.757 1.252 1 1 2 1.563 0.919 1 1 2 0.000

36
N umCharactersi,t 98,120 289,744 12,634 32,856 81,233 67,387 166,188 10,305 22,684 52,037 0.000
N umItemsi,t 3.388 2.835 2 2 4 3.093 2.247 2 2 4 0.000
N umGraphicsi,t 3.882 10.014 0 1 2 2.557 7.607 0 0 1 0.000
N umExhibitsi,t 2.114 2.690 1 1 3 1.768 1.944 1 1 2 0.000

Per Filing:
N umCharactersi,t 52,810 155,193 9,141 21,512 46,800 46,009 122,934 8,193 16,288 36,005 0.000
N umItemsi,t 1.969 0.729 1.5 2 2 1.941 0.723 1.5 2 2 0.053
N umGraphicsi,t 1.991 5.228 0 0.333 1 1.441 4.381 0 0 1 0.000
N umExhibitsi,t 1.185 1.149 0.667 1 1.5 1.139 1.105 0.667 1 1 0.011
 Table 3. Institutional Ownership Around the Russell 1000/2000 Threshold

This table provides fixed eects regression estimates of the eect of Russell 2000 index membership on the
fraction of shares outstanding owned by institutions, or IOi,t , between 1996 and 2006. Specifically, we
P j P j
estimate IOi,t = + Di,t + kj=1 j Ri,t + kj=1 j Di,t Ri,t + Xi,t + ui + vt + i,t and present estimates
in which we vary k , the order of the polynomial. Columns (1) and (2) present estimates for k = 0, columns
(3) and (4) present estimates for k = 1, and columns (5) and (6) present estimates for k = 2.

k=0 k=1 k=2

(1) (2) (3)
Di,t 0.084* 0.105*** 0.098**
(0.043) (0.052) (0.047)

Xi,t YES YES YES

Year FE YES YES YES
R2 0.1911 0.2092 0.2368
Observations 23,949

***,**,* reflect statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at firm level.

37
 Table 4. Institutional Ownership and Reporting Quality

This table presents fixed eects regression estimates of the traditional measures of reporting quality
c i,t , our measure of the fraction of firm i shares outstanding owned by institutional investors in
on IO
year-month t, during the sample period 1996 to 2006. First stage instrumental variables estimates
c i,t are presented in Table 3. The Cragg-Donald Wald F-statistic exceed their Stock-Yogo
for IO
weak instrument critical values in all specifications, and the Anderson LM statistic p-values are less
than 0.01 in all specifications.

Big4i,t AudSwitchi,t AdvOpinioni,t AbsAcci,t AccQualityi,t

c i,t
IO 0.3344*** 0.2401** -0.1342*** -0.2767*** 0.0179*
(0.1287) (0.1132) (0.0335) (0.0941) (0.0106)

Xi,t YES YES YES YES YES

Year FE YES YES YES YES YES
R2 0.3613 0.5284 0.0142 0.1464 0.0612
Observations 23,949

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at firm level.

38
 Table 5. Institutional Ownership and 8-K Filings Disclosure

This table presents fixed eects 2SLS regression estimates of our 8-K filing measures of disclosure
c i,t , our measure of the fraction of firm i shares outstanding owned by institutional investors in
on IO
year-month t, during the sample period 1996 to 2006. First stage instrumental variables estimates
c i,t are presented in Table 4. Panel A presents 8-K filing measures at the firm-month level
for IO
of observation and Panel B presents the same measures scaled by the total number of 8-K filings
in each firm-month. The Cragg-Donald Wald F-statistic exceed their Stock-Yogo weak instrument
critical values in all specifications, and the Anderson LM statistic p-values are less than 0.01 in all
specifications.
Panel A. Per-Month Measures

N um8kF ilingsi,t ln N umChari,t N umItemsi,t N umGraphicsi,t N umExhibitsi,t

c i,t
IO 0.3041** 0.5612*** 0.5604** 3.0273*** 0.3459**
(0.1427) (0.1833) (0.2719) (0.8280) (0.1593)

E[Y ] 1.53 10.24 2.82 1.35 1.87

Xi,t YES YES YES YES YES
Year-Month FE YES YES YES YES YES
2
R 0.0448 0.0287 0.0043 0.0202 0.0746
Observations 245,711

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

Panel B. Per-8K Filing Measures

ln N umChari,t N umItemsi,t N umGraphicsi,t N umExhibitsi,t

c i,t
IO 0.4713** 0.3802*** 2.1292*** 0.1435*
(0.2009) (0.1456) (0.7523) (0.0781)

E[Y ] 9.91 1.86 0.74 1.19

Xi,t YES YES YES YES
Year-Month FE YES YES YES YES
2
R 0.0177 0.0539 0.0164 0.0053
Observations 245,711

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

39
 Table 6. The Information Content of 8-K Filing Characteristics

This table presents fixed eects regression estimates of measures of equity market and analyst
reactions to 8-K filing characteristics, including the number of 8-K filings in a given year-month, or
N um8kF ilingsi,t , the monthly total number of characters in these filings, N umCharactersi,t , the
number of separate items disclosed in these filings, N umItemsi,t , the number of graphics provided
in these filings, N umGraphicsi,t , and the number of exhibits in these filings, N umExhibitsi,t . The
absolute value of the 3-day cumulative abnormal announcement return, abs(CAR)i,t , and the 3-day
cumulative abnormal trading volume, ln AbnormalV olumei,t , measure equity market reaction, and
the mean absolute forecast deviation from actual EPS realizations, Deviationi,t , and the number
of forecast revisions per broker during the five days following each 8-K filing, N umRevisionsi,t ,
measure analyst reaction.

abs(CAR)i,t ln AbnormalV olumei,t Deviationi,t N umRevisionsi,t

ln N umChari,t 0.338*** 0.385*** 0.048*** 0.045*** -0.016** -0.016** 0.007* 0.007*

(0.093) (0.105) (0.015) (0.013) (0.007) (0.006) (0.004) (0.003)
N umItemsi,t 0.157* - 0.013 - 0.046 - 0.011** -
(0.079) (0.009) (0.032) (0.005)
N umGraphicsi,t 0.302*** 0.273** 0.095*** 0.087** -0.019*** -0.016*** 0.030*** 0.026***
(0.106) (0.112) (0.036) (0.034) (0.005) (0.005) (0.008) (0.007)
N umExhibitsi,t 0.155* 0.142* 0.075*** 0.068*** -0.015** -0.011** 0.016** 0.012*
(0.093) (0.086) (0.014) (0.017) (0.006) (0.005) (0.008) (0.007)

Xi,t YES YES YES YES YES YES YES YES

Year-Month FE YES YES YES YES YES YES YES YES
Item type FE NO YES NO YES NO YES NO YES
R2 0.0510 0.0583 0.0727 0.0754 0.0921 0.0946 0.1289 0.1317
Observations 1,373,778 1,373,778 1,373,778 1,373,778 59,247 59,247 59,247 59,247

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

40
 Table 7. Institutional Ownership and the Information Content of 8-K Filings

Panel A of this table presents fixed eects instrumental variables regression estimates of the
absolute value of the 3-day cumulative abnormal announcement return, abs(CAR)i,t on IO c i,t ,
c
and interactions of IOi,t and 8-K filing characteristics, including ln N umChari,t , N umItemsi,t ,
N umGraphicsi,t , and N umExhibitsi,t . Panel B presents analogous fixed eects instrumental vari-
ables regression estimates with the 3-day cumulative abnormal trading volume, ln AbnormalV olumei,t
replacing abs(CAR)i,t as the dependent variable. The Cragg-Donald Wald F-statistic exceed their
Stock-Yogo weak instrument critical values in all specifications, and the Anderson LM statistic
p-values are less than 0.01 in all specifications.
Panel A. Absolute Cumulative Abnormal Returns

c i,t
IO 0.662*** 0.344** 0.462** 0.478** 0.478** 0.363**
(0.172) (0.168) (0.183) (0.192) (0.176) (0.170)
di,t IOi,t
ln N umChar 0.391*** 0.244**
(0.127) (0.114)
di,t IOi,t
N umItems 0.614** 0.393*
(0.244) (0.253)
d i,t IOi,t
N umGraphics 1.046** 0.773**
(0.402) (0.342)
d i,t IOi,t
N umExhibits 0.742* 0.529*
(0.394) (0.317)

Xi,t YES YES YES YES YES YES

Year-Month FE YES YES YES YES YES YES
8-K Characteristics YES YES YES YES YES YES
R2 0.0517 0.0583 0.0581 0.0584 0.0580 0.0585
Observations 1,373,778

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

41
Panel B. ln AbnormalV olumei,t

c i,t
IO 0.291** 0.222** 0.216** 0.190** 0.262** 0.166*
(0.139) (0.097) (0.089) (0.088) (0.109) (0.087)
di,t IOi,t
ln N umChar 0.326** 0.252**
(0.144) (0.120)
di,t IOi,t
N umItems 0.676** 0.603*
(0.324) (0.314)
d i,t IOi,t
N umGraphics 1.652*** 1.347***
(0.547) (0.529)
d i,t IOi,t
N umExhibits 0.454* 0.291
(0.279) (0.273)

Xi,t YES YES YES YES YES YES

Year-Month FE YES YES YES YES YES YES
8-K Characteristics YES YES YES YES YES YES
R2 0.0744 0.0755 0.0752 0.0756 0.0750 0.0758
Observations 1,373,778

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

42
Table 8. Institutional Ownership and the Information Content of 8-K Filings for Equity Analysts

Panel A of this table presents fixed eects instrumental variables regression estimates of the absolute
value of the mean absolute forecast deviation from actual EPS realizations, Deviationi,t , on IO c i,t ,
c
and interactions of IOi,t with 8-K filing characteristics, including ln N umChari,t , N umItemsi,t ,
N umGraphicsi,t , and N umExhibitsi,t . Panel B presents analogous fixed eects instrumental vari-
ables regression estimates with the the number of forecast revisions per broker during the five
days following each 8-K filing, N umRevisionsi,t , replacing Deviationi,t as the dependent variable.
The Cragg-Donald Wald F-statistic exceed their Stock-Yogo weak instrument critical values in all
specifications, and the Anderson LM statistic p-values are less than 0.01 in all specifications.
Panel A. Forecast Accuracy, or Deviationi,t

c i,t
IO -0.143*** -0.084** -0.092** -0.065* -0.094** -0.059*
(0.046) (0.039) (0.039) (0.038) (0.040) (0.037)
di,t IOi,t
ln N umChar -0.249*** -0.210***
(0.078) (0.075)
di,t IOi,t
N umItems -0.192** -0.132
(0.084) (0.081)
d i,t IOi,t
N umGraphics -0.489*** -0.426***
(0.163) (0.158)
d i,t IOi,t
N umExhibits -0.112 -0.098
(0.074) (0.073)

Xi,t YES YES YES YES YES YES

Year-Month FE YES YES YES YES YES YES
8-K Characteristics YES YES YES YES YES YES
R2 0.0929 0.0938 0.0936 0.0940 0.0935 0.0943
Observations 59,247

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

43
Panel B. Forecast Revisions

c i,t
IO 3.219** 2.450** 1.952* 2.316** 2.522** 2.148*
(1.427) (1.196) (1.143) (1.145) (1.161) (1.122)
di,t IOi,t
ln N umChar 0.588** 0.472**
(0.256) (0.228)
di,t IOi,t
N umItems 0.490** 0.423*
(0.232) (0.231)
d i,t IOi,t
N umGraphics 0.732** 0.685**
(0.289) (0.274)
d i,t IOi,t
N umExhibits 0.340* 0.301
(0.191) (0.187)

Xi,t YES YES YES YES YES YES

Year-Month FE YES YES YES YES YES YES
8-K Characteristics YES YES YES YES YES YES
R2 0.1306 0.1312 0.1311 0.1313 0.1308 0.1314
Observations 59,247

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

44
 Table 9. Institutional Ownership and 8-K Filing Disclosure: Subsample Robustness

This table presents fixed eects instrumental variables regression estimates of the main dependent
variables used in Tables 4, 5, 6, 7, and 8 on total institutional ownership. The main dependent
variables are 8-K filing characteristics, including N um8kF ilingsi,t , ln N umChari,t , N umItemsi,t ,
N umGraphicsi,t , and N umExhibitsi,t , and measures of the information content of 8-K filings,
including abs(CAR)i,t , ln AbnormalV olumei,t , N umRevisionsi,t , and Deviationi,t . These vari-
ables are defined in Sections 3 and 4. Total institutional ownership is interacted (one by one)
with characteristics that may impact disclosure incentives or interact with previously studied out-
comes of institutional ownership. We present only the interaction terms for brevity. Item 2.02 and
Item 7.01 are indicator variables that identify 8-K filings as pertaining to earnings. Post2004 is
an indicator variable that identifies 8-K filings from after 2004 when the 8-K classification regime
changed. N egativeN ews is an indicator variable that identifies 8-K filings associated with negative
market reactions. The Cragg-Donald Wald F-statistic exceed their Stock-Yogo weak instrument
critical values in all specifications, and the Anderson LM statistic p-values are less than 0.01 in all
specifications.

Interaction variable: Item 2.02 P ost2004 N egativeN ews

Filing Characteristics:
N um8kF ilingsi,t 0.002 0.017 0.039
(0.026) (0.019) (0.024)
ln N umChari,t 0.022 0.055 0.103
(0.051) (0.044) (0.068)
N umItemsi,t 0.001 0.006 0.147*
(0.047) (0.051) (0.083)
N umGraphicsi,t 0.214 0.709 1.016
(0.486) (0.539) (0.676)
N umExhibitsi,t 0.008 0.026 0.039
(0.044) (0.043) (0.064)
Information Content:
abs(CAR)i,t 0.092* 0.069 0.133*
(0.051) (0.056) (0.072)
ln AbnormalV olumei,t 0.046 0.028 0.041
(0.027) (0.023) (0.025)
N umRevisionsi,t 0.621 0.557 0.962*
(0.411) (0.428) (0.531)
Deviationi,t -0.004 -0.009 -0.023
(0.014) (0.015) (0.015)

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

45
 Table 10. Institutional Ownership and 8-K Filing Disclosure: Specification Robustness
This table presents fixed eects instrumental variables regression estimates of the main dependent variables used in Tables 4, 5, 6, 7, and 8 on total institu-
tional ownership or quasi-indexer ownership, as defined in Appel et al. [2016] and Bushee [2001]. The main dependent variables are 8-K filing characteristics,
including N um8kF ilingsi,t , ln N umChari,t , N umItemsi,t , N umGraphicsi,t , and N umExhibitsi,t , and measures of the information content of 8-K filings, in-
cluding abs(CAR)i,t , ln AbnormalV olumei,t , N umRevisionsi,t , and Deviationi,t . Column headers denote specification features. Columns (1)-(4) examine total
institutional ownership, and columns (5)-(8) examine quasi-indexer ownership only. Columns (1), (2), (5), and (6) use a first stage regression that controls for
a single polynomial based on ln M arketCapitalization that crosses the index rank threshold as in Appel et al. [2016], and columns (3), (4), (7), and (8) use a
first stage regression that controls for separate polynomials on each side of the index rank threshold based on the market capitalization ranks as in Crane et al.
[2016]. Columns (2), (4), (6), and (8) use observed market capitalization rankings (May) to construct index membership lists as in Appel et al. [2016] and Crane
et al. [2016], and columns (1), (3), (5), and (7) use rankings that incorporate Russells proprietary rank adjustment (June). Panel A presents results with global
polynomial control functions as in Crane et al. [2016] and Panel B presents results with local polynomial control functions with a 250 market capitalization rank
bandwidth as in Appel et al. [2016]. The Cragg-Donald Wald F-statistic exceed their Stock-Yogo weak instrument critical values in all specifications, and the
Anderson LM statistic p-values are less than 0.01 in all specifications.
Panel A. Global Polynomials
Total Institutional Ownership Quasi-Indexers Only
ln M arketCap. Market Cap. Rank ln M arketCap. Market Cap. Rank
June May June May June May June May
(1) (2) (3) (4) (5) (6) (7) (8)
Filing Characteristics:
N um8kF ilingsi,t 0.217** 0.231** 0.267** 0.304*** 0.392** 0.407** 0.504** 0.556**
(0.110) (0.116) (0.134) (0.143) (0.184) (0.198) (0.229) (0.237)

46
ln N umChari,t 0.334* 0.328* 0.430** 0.471** 0.581* 0.683** 0.782** 0.910**
(0.186) (0.181) (0.212) (0.201) (0.374) (0.355) (0.402) (0.397)
N umItemsi,t 0.245* 0.227* 0.327** 0.380*** 0.540* 0.462* 0.565* 0.707**
(0.143) (0.141) (0.151) (0.146) (0.282) (0.254) (0.305) (0.285)
N umGraphicsi,t 1.490* 1.384* 1.794** 2.129*** 2.722* 2.791* 3.122* 3.959**
(0.793) (0.767) (0.788) (0.752) (1.536) (1.512) (1.622) (1.663)
N umExhibitsi,t 0.085 0.073 0.119 0.144* 0.186* 0.162 0.235* 0.266*
(0.069) (0.075) (0.076) (0.078) (0.115) (0.131) (0.138) (0.145)
Information Content:
abs(CAR)i,t 0.418** 0.483** 0.591*** 0.662*** 0.868** 0.989** 1.106** 1.249***
(0.194) (0.183) (0.181) (0.172) (0.406) (0.388) (0.462) (0.453)
ln AbnormalV olumei,t 0.174* 0.170* 0.278** 0.291** 0.320* 0.368* 0.549** 0.623**
(0.102) (0.105) (0.133) (0.139) (0.199) (0.220) (0.257) (0.271)
N umRevisionsi,t 2.342* 1.978 2.845** 3.219** 3.890* 4.233* 4.566* 4.894**
(1.419) (1.326) (1.438) (1.427) (2.259) (2.251) (2.378) (2.372)
Deviationi,t -0.097 -0.086 -0.136*** -0.143*** -0.199* -0.181* -0.202* -0.215*
(0.063) (0.057) (0.051) (0.046) (0.108) (0.103) (0.116) (0.114)

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.
 Panel B. Local Polynomials
Total Institutional Ownership Quasi-Indexers Only
ln M arketCap. Market Cap. Rank ln M arketCap. Market Cap. Rank
June May June May June May June May
(1) (2) (3) (4) (5) (6) (7) (8)
Filing Characteristics:
N um8kF ilingsi,t 0.181* 0.190** 0.249** 0.258** 0.296** 0.317** 0.454** 0.482**
(0.103) (0.098) (0.135) (0.130) (0.143) (0.152) (0.221) (0.233)
ln N umChari,t 0.254* 0.236* 0.352** 0.379** 0.510** 0.542** 0.723** 0.809**
(0.175) (0.134) (0.204) (0.183) (0.244) (0.227) (0.337) (0.341)
N umItemsi,t 0.192* 0.178 0.307** 0.323** 0.371* 0.365* 0.579* 0.614*
(0.133) (0.124) (0.161) (0.157) (0.216) (0.212) (0.312) (0.320)
N umGraphicsi,t 1.265** 1.192* 1.824** 1.883** 2.246 2.197* 3.036** 3.178**

47
(0.657) (0.679) (0.829) (0.862) (1.423) (1.314) (1.467) (1.459)
N umExhibitsi,t 0.074 0.065 0.103 0.112 0.142 0.134 0.161 0.173*
(0.068) (0.072) (0.079) (0.081) (0.104) (0.096) (0.107) (0.103)
Information Content:
abs(CAR)i,t 0.352** 0.367* 0.517*** 0.554** 0.742* 0.783* 0.859** 0.946**
(0.196) (0.189) (0.190) (0.172) (0.395) (0.412) (0.414) (0.443)
ln AbnormalV olumei,t 0.153** 0.139* 0.224** 0.231* 0.261 0.277 0.487** 0.520*
(0.081) (0.082) (0.137) (0.142) (0.192) (0.213) (0.239) (0.287)
N umRevisionsi,t 1.629* 1.581 2.594** 2.670** 3.373* 3.420* 3.672** 3.913**
(1.204) (1.077) (1.386) (1.259) (1.742) (1.839) (1.756) (1.914)
Deviationi,t -0.071* -0.065 -0.092* -0.104* -0.142* -0.146* -0.169* -0.187*
(0.058) (0.061) (0.055) (0.057) (0.076) (0.081) (0.094) (0.098)

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.
Appendix

Table A1. Day-of-week Fixed Eects

abs(CAR)i,t ln AbnormalV olumei,t Deviationi,t N umRevisionsi,t

ln N umChari,t 0.357*** 0.055*** -0.020** 0.008**

(0.088) (0.012) (0.006) (0.003)
N umItemsi,t - - - -

N umGraphicsi,t 0.310** 0.092** -0.024*** 0.020***

(0.104) (0.032) (0.004) (0.006)
N umExhibitsi,t 0.155* 0.059*** -0.013** 0.011*
(0.082) (0.017) (0.005) (0.006)

Day-of-week FE YES YES YES YES

Year-Month FE YES YES YES YES
Item type FE YES YES YES YES
R2 0.0627 0.0783 0.0977 0.1341
Observations 1,373,778 1,373,778 59,247 59,247

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

48
Table A2. Regulation Fair Disclosure and the Change in Mandatory 8-K Filing Items (Per-Month Analysis)

N um8kF ilingsi,t ln N umChari,t N umItemsi,t N umGraphicsi,t N umExhibitsi,t

c i,t
Pre-Reg FD: IO 0.2248* 0.3732** 0.5311** 1.9833** 0.2848*
(0.1221) (0.1812) (0.2672) (0.8673) (0.1543)
c i,t
Post Reg FD: IO 0.2712** 0.5963*** 0.5678** 3.8261*** 0.3984***
(0.1215) (0.1604) (0.2682) (0.7764) (0.1396)

c i,t
Pre-8K Change: IO 0.2487** 0.4735*** 0.5454** 2.4318** 0.3279**
(0.1228) (0.1592) (0.2667) (0.9283) (0.1496)
c i,t
Post 8K Change: IO 0.2656** 0.5284*** 0.5513** 3.1411*** 0.3536**
(0.1222) (0.1607) (0.2694) (0.8168) (0.1508)

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

Table A3. Regulation Fair Disclosure and the Change in Mandatory 8-K Filing Items (Consequences Analysis)

abs(CAR)i,t ln AbnormalV olumei,t Deviationi,t F orecast Revisionsi,t

c i,t
Pre-Reg FD: IO 0.583** 0.251* -0.089** 2.042*
(0.247) (0.142) (0.041) (1.213)
c i,t
Post Reg FD: IO 0.741*** 0.307** -0.116*** 3.781***
(0.203) (0.139) (0.043) (1.224)

c i,t
Pre-8K Change: IO 0.618*** 0.271** -0.101*** 2.516**
(0.207) (0.137) (0.037) (1.208)
c i,t
Post 8K Change: IO 0.687*** 0.299** -0.110*** 3.073***
(0.221) (0.138) (0.042) (1.256)

***,**,* represent statistical significance at the 1%, 5%, and 10% levels, respectively.
Standard errors are clustered at the firm level.

49