The relationship between information content and institutional investors: evidence from new product preannouncements

In this study, we investigate the relationship between information content of new product preannouncements (NPPAs) and trading behaviors of institutional investors. Using hand-collected data from 1995 to 2004, in empirical results, we find that there is a significantly positive relationship between information content and institutional investors. NPPAs can help institutional investors to evaluate the potential success of forthcoming new products through signaling enough information content. As a result, more information cues and earlier NPPAs can make institutional investors choose these preannouncing firms into their investment portfolios to increase their holdings and attract more different institutional investors to hold these shares of preannouncing firms. In addition, we also find the positive advertising and R&D investment effects. Our findings suggest that managers should use the information content of NPPA signals to reduce information asymmetry and help managers to implement their NPPA strategies so as to receive greater financial support from institutional investors.