While corporate transparency is often cited as being in the interest of investors, another factor is the self-interest of the companies themselves. Some argue that improved disclosure is in fact in a company’s interest as it will be rewarded by a lower cost of capital. In this context management needs to balance the needs for greater transparency with those of commercial confidentiality.

This paper starts from the perspective of how senior management manages disclosure to attract and retain institutional investors. Identifying desirable institutional investors is very important as their clout can determine the outcome of corporate actions such as hostile takeovers, refinancing or AGM votes.

This paper explores whether organisations that make more transparent corporate disclosures experience more stable patterns of institutional ownership. It classifies disclosures into five types: relating to plans and strategy; regulation; performance; new products; and research and development. The author then tested for a link between the disclosures and share volatility, and then whether there was a link to major institutional trading patterns.

While, as expected, there is consistent evidence that additional disclosures are associated with short-term share price volatility (especially disclosures relating to performance and R&D), evidence suggests that increased corporate disclosure of industry-specific, non-financial and non-routinised information increases the stability of the holdings by major institutional investors.

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