The Impact Of Fund Corporate Site Visit On Fund Performance

Due to the information asymmetry,informed investors get higher return when they trade with uninformed investors in the markets.Many studies believe that fund management companies,as professional institutional investors in the stock market,can generate excess return through their relative information advantage.However,it is hard to examine where funds gain information due to the data limitition.Existing studies try to use indirect channels,such as social networks,business relationship,political connections or syndicated loans participation to verify the fund’s predominance of information.Based on the data of investor relationship management activities of listed companies in China,this paper studies one of the direct behaviors of fund manager information searching – site visits to listed companies.We try to find the channel for fund to obtain information advantage from a dynamic perspective and explain the source of fund’s excess return.Therefore,this paper is the expansion and innovation to fund behavior and performance attribution study.Under the background of "institutionalization" and "specialization" in the Chinese capital market,Chinese fund industry has achieved a great development.The management size of private funds and mutual funds has grown rapidly with the optimization of financial environment and the improvement of market system.By the end of 2019,the asset management scale of China’s private funds and mutual funds has exceeded 14 trillion yuan,which implies the influence of fund industry is increasing steadily.With the increasing scale and strength,private fund and mutual fund are all playing more and more important roles in the capital market and begin to show strong market influence.The research on their investment behavior and investment impact have important practical meaning.Meanwhile,site visit,as a special behavior of fund to search information,is closely related to fund’s investment behavior or investment impact.This paper observes the relationship between site visit activity and fund performance from two perspectives On the one hand,from the perspective of information transmission,this paper regards site visit as a special information search behavior of funds and proves the information value of field research by observing the relationship between fund site visit and fund performance.This paper finds that different funds have different visit frequency due to the difference of visit cost and information processing ability,and site visit can truly help funds to obtain information advantage,so funds with different visit frequency have different performance.On the other hand,from the perspective of information disclosure,this paper regards the funds’ participation in site visit as an event that arouses investor market attention.The research purpose is to observe the short-term impact of fund visit information on investor attention and stock price performance when the visiting details disclosued to public,and to relate market effect of fund visit with the fund’s shortterm return.This paper finds that investor attention to site visit would be affected by the visiting participants.The participation of fund companies in the site visit will arouse abnormal investor attention and stock price overreation.Therefore,there is a possibility that the fund can make profits by using its own information advantage and short-term market effect after site visit.What’s more,this paper finds that the abnormal investor attention triggered by fund visit will strengthen the improvement effect of fund visit on company’s long-term capital structure.Meanwhile,there are significant differences between private fund and mutual fund in investment style,holding restriction and incentive mechanism,and the information disclosure about stock portfolio of two funds are also completely different.From the perspective of fund companies participating in site visit,this paper observes the performance effect and market effect caused by the two types of funds’ visiting and analyzes the different visiting effects under the influence of their unique mechanisms from multiple angles.Based on two theoretical models,the model of asymmetric information affects investors’ required return and the model of investors’ sentiment affecting stock price,we analyzes the impact of fund information search behavior-site visit on different participants in the market.The main conclusions are as follows:First,this paper examines hedge fund’s information search decision from fund and company level using manually collected hedge fund site visit data.We find that the site visit of hedge fund has a significant positive effect on fund performance.Hedge funds that make more visits have significantly higher returns.Moreover,this study finds that the effect of hedge fund site visit on fund performance is stronger when the visited firms have less analyst coverage,when visitors ask more questions during the visits or visited firms answer the questions with more positive sentiment.In addition,the effect of hedge fund site visit on fund performance is stronger when hedge funds make the corporate site visits with mutual funds,indicating that there is an interaction between different participants of site visit.This paper also explores the channel through which hedge fund could generate higher performance after site visit.We find that the margin trading volume of visited companies increased significantly after hedge funds’ visits.Second,this paper examines mutual fund’s information search decision using the institutional investor site visit and mutual fund stockholding data.We find that there is a significant positive correlation between the number of mutual fund site visits and fund performance,indicating that information search behavior can help mutual fund to get higher return.Moreover,the effect of mutual fund site visit on fund performance is stronger when the visited companies have better information disclousre quality,when visiting fund managers share the same alumni networks with corporate executives or when visited companies reply to visitors with more positive sentiment.This paper also finds that the effect of corporate site visits is stronger for active funds,funds with more concentrated stock holding or holding more small-cap stocks.Further,this paper reconstructs different investment portfolios of mutual funds by merging the mutual fund site visit data and mutual fund holdings data.The analysis result of fund portfolio shows that,among mutual fund stock holdings,stocks of firms being visited perform significantly better than those not being visited and stocks of firms with an increased fund holding perform significantly better than stocks of firms with a decreased fund holding.Among stocks of firms visited,stocks held by the visiting funds perform better than those visited-but-not held stocks.Moreover,this paper compares the visiting effect of hedge fund and mutual fund based on the difference of incentive system,liquidity restriction or holding constrains between two type funds.Third,this paper connects behaviors between institutional and retail investors.It observes abnormal investor attention as well as market reactions caused by fund information-search behavior,through the lens of behavioral finance.Prior studies find that the trading behavior of institutional investors will attract retail investors to follow and imitate,creating the "herding effect" of investor behavior.Based on the theory of investors bounded rationality,this paper examines the reaction of retail investors to a specific fund attention behavior.Empirical results of this paper indicate that mutual fund site visits would significantly increase the abnormal investors’ attention to related companies.And the increasing attention contains positive,negative and neutral sentiment.In addition,the investor attention effect of fund visit is weaker when visiting funds hold the stock of visited firms and stronger when the visiting funds have better previous performance.Also,larger stock price delay of visited companies will weaken the investor attention effect of fund visit while higher corporate governance quality of visited firms will strengthern the investor attention effect.More importantly,this paper finds that fund information-research behavior will stimulate “long” investor sentiment to significantly improves the next-day stock return of visited firms.Moreover,there is a postive correlation between the increasing stock return of visited firms and visiting funds’ short-term performance,which means that mutual fund could use a potential trading strategy to gain higher return through the effect of the investor attention in a short term.Meanwhile,this paper also finds that the abnormal investor attention caused by fund visits will significantly enhance the improvement effect of fund activism on the capital structure of listed companies.By analyzing the funds’ corporate site visit activities,this paper tests the impact of information-search behavior on fund performance and creates a new perspective to examine the specific way for fund to obtain information advantage.In addition,this paper brings fund site visit as a factor into the relationship between investor attention and market reaction,providing new ideas for studying the source of fund short-term trading profit and the spillover effect of institutional investor behavior.At last,the conclusion of this paper provides theoretical support and literature support for the optimization of information disclosure system in capital market,the improvement of listed companies’ investor relationship management system and the standardization of self-discipline management system in fund industry.The conclusion also provides a reference for the regulatory authorities to regulate the behavior of institutional investors,guard against the "conspiracy" between market participants and prevent the systematic risks caused by abnormal stock reaction.