Do Exposure and Disclosure Affect Ownership Concentration and Equity Returns?

Gennaro BERNILE, Singapore Management University
Shimon Kogan, University of Texas - Austin
Johan Sulaeman, Southern Methodist University


This study examines whether a firm’s proximity to potential investors and its disclosure quality jointly affect investor attention and stock returns. We develop a model that links exposure and disclosure to investor attention, asset ownership, and asset returns in a rational setting. Our empirical tests support the model’s main intuition that investors’ attention to a particular firm is an increasing function of the proximity of potential investors to the firm’s locations (exposure) and the informativeness of the firm’s financial statement (disclosure quality). As a result, a firm’s exposure and disclosure affect shareholders’ dispersion and trading intensity. Moreover, stock returns are strongly related to potential investors’ concentration around the firm headquarters. Firms whose HQ’s are located far from potential investors outperform those located near potential investors by up to 0:68 percent monthly on a value-weighted basis. This strong relation, however, is significantly tempered by greater firm’s non-HQ exposure or higher disclosure quality. Overall, we show that a firm’s proximity to potential investors and its disclosure quality have a large impact on the firm’s ownership dispersion and stock returns, and that these determinants of investors’ attention on the firm are to a large extent substitutes.