The Information Governance Role Of Insurance Institutional Investors' Corporate Visits

The development of capital market requires long-term and stable source of funds,and numerous institutional investors.In the field of insurance investment,we encourage insurance funds which are large and stable to play a role of active supervisors on corporate governance.Because it is a specific requirement to prevent systemic risks and maintain financial security.Meanwhile,insurance funds as a financial and strategic investor can invest in high-quality listed companies,which will promote the development of institutional investors and consolidate the long-term investment foundation.And insurance funds have the ability to withstand short-term floating losses because of its low cost and long term,at the same time it is suitable for reverse cycle investment.So when there are more uncertainties in the environment and market confidence is insufficient,insurance funds' stock investment has some advantages of value discovery.Ultimately,insurance funds can grasp the opportunity to buy cheap assets for the allocation of long-term and high-quality investments,and then promote the development of the capital market.However,the negative effects caused by insurance companies' stock holdings have led market participants to view insurance funds as "flood beasts." Therefore,how to guide insurance funds to play a governance role and become long-term "financial investors" to share the growth dividends of listed companies,and as a stable force in the capital market to improve market allocation efficiency and serve the real economy,visit site will become an important opportunity.The data shows that insurance institutions initiated and participated in a total of 1929 site visits in2018.They are likely to gain new,credible information about a firm's performance through site visits because they are able to view its fixed assets,to look over inventory warehouses,to observe its operating and R&D activities,and to talk to middle-or low-level employees.We expect that insurance funds can affect the production and disclosure of original information by providers through site visits.At the same time,it can also affect the external investor transactions as information users by exerting information efficiency to form an "eyeball effect",that is,by affecting company information's processing,interpretation,using and transmission.This study investigates the information governance effects of capital market caused by insurance funds' site visits.We firstly focus on the governance effect of insurance funds' site visits from information disclosure quality of firms.Secondly,we examine the relationship between site visits and stock liquidity considering the external investor attention that caused by site visits of insurance funds.Thirdly,this paper further examines the information governance effects of insurance funds' site visits from the perspective of capital market pricing efficiency.The sample is consisting Chinese listed firms of the Shenzhen Stock Exchange,and we find that:(1)The site visits of insurance funds can significantly improve the quality of information disclosure by reducing accrued earnings management and true earnings management.(2)This relation is more pronounced for firms under weak corporate governance.(3)Furthermore,we find that the information governance effect is stronger when corporate managers are more willing to communicate privately with insurance funds for the purpose of stabilizing stock prices and easing financing constraints.(4)On one hand,insurance funds can get more information to conduct stock transactions,and the stock price can reflect more information about company's value.On the other hand,it will ultimately improve information efficiency and reduce the cost of stock liquidity by attracting investor attention.(5)Furthermore,we found that the site visits of insurance funds brought more investor attention which was manifested in a marked increase in search volume and stock message boards,which would significantly reduce the cost of stock liquidity.(6)The association between site visits and stock liquidity is more prominent for firms with weak corporate governance.(7)The site visits of insurance funds can significantly reduce the dependence of the return on assets to past market information,meanwhile it can facilitate the incorporation of firm-specific information into stock prices,and therefore improve the information efficiency of capital market.(8)The mechanism of insurance funds' site visits to improve market pricing efficiency mainly lies in information efficiency channel and corporate governance channel.Insurance funds can become the stabilizing force of China's capital market and exert an effective information governance effect.Compared with prior literatures,we make several contributions to the literature.First,our study extends research on insurance funds participation in corporate governance from an informal governance perspective.Most of researches on how insurance funds play the corporate governance role are focused on the analysis from the perspective of insurance funds' shareholding.As a way of private communication,insurance funds can contact with the company's management before shareholding to express interest demands,it will influence its decision-making.This is a more important and realistic way for insurance funds to play the governance role.Our study provides more empirical evidence for the role of insurance funds' site visits on information governance.And then,it enriches the existing literature on the governance effects of insurance institutional investors.Second,our results also provide evidence for the debate on whether institutional investors reduce stock liquidity through adverse selection or improve stock liquidity by promoting information efficiency.Different from the existing research which focuses on institutional investors such as public funds,private equity funds,QFII,and banks,our study empirically tests the large and rapidly developing institutional investor of insurance funds,which further supplements and enriches institutional investors on stocks liquidity.Third,we provide a new large sample of empirical evidence on how insurance institutional investors exert the governance effect of capital market.Prior literature focused on the influence of different types of institutional investors on the pricing efficiency of the capital market,such as securities investment fund,social security fund,QFII.We first examine the role of insurance institutional investors in the efficiency of capital market pricing,which are based on the special information acquisition channel of site visits.Our results contribute the literature on the relation between heterogeneity of institutional investor and capital market pricing efficiency.Finally,our results have policy implications for improving information environment of capital market and economic development in China.Recently,Chinese government has strongly advocated promoting insurance funds to increase stock investment and serve the real economy.However,the actual implementation of insurance funds' stock investments often differs greatly from regulatory expectations.Regarding the supervision of insurance institutions' shareholdings,the relevant regulatory agencies cannot generalize insurance institutions to be“flood beasts”,nor can they allow insurance funds to “make waves”,allowing them to buy low and sell high by virtue of scale effects.Frequent speculation in selling has led to market speculation,and even bidding for control of listed companies.The conclusion of our study shows that insurance funds can affect the company managers' information disclosure and the stock transactions of external investors through site visits,an informal private communication channel,thereby improving the efficiency of capital market pricing.Therefore,we must pay attention to the particularity of insurance funds sources and transaction logic,guide insurance funds to make more use of informal governance such as site visits.The mechanism plays a role that promoting them to share the company's growth dividends with the long-term "financial investors",and exerts the information governance effect as a stable force in the capital market.Ultimately,insurance institutions can better serve the real economy through the capital market.