The role of institutional investor cliques in managers' earnings forecasts

In response to the recent debate on institutional investor cliques, this paper investigates how institutional investor cliques affect management voluntary disclosure. The empirical findings show that institutional investor clique ownership increases the propensity of managers to issue good news in earnings forecast disclosure but reduces the propensity to issue bad news. This paper also finds that institutional investor cliques' monitoring of management earnings forecasts is weaker when the short-selling constraint is lifted and when there is less media coverage. We further find that the strength of the relation is greater for firms with larger clique sizes, higher proportion of management shareholdings, and whose largest clique has a higher Herfindahl index, larger size and more diverse backgrounds. Besides, we also find a reduction in the timing and accuracy of earnings forecasts for firms with institutional investor clique ownership. Our findings highlight that monitoring on firms' voluntary disclosure weakens in the presence of institutional investor cliques.