Managing the Demand for Information from Institutional Investors: Evidence from Private In-House Meetings of Shenzhen Stock Exchange (SZSE) Listed Firms

The Shenzhen Stock Exchange (SZSE) in China is unique worldwide in requiring disclosure of the timing, participants and selected content of private in-house meetings between firm managers and outside investors. We investigate whether managers host these private meetings to strategically influence mutual funds – the predominant group of institutional investors in China. Using a large hand-collected dataset, we find that mutual funds with relatively large ownership in the hosting firm have more access to private in-house meetings. We also find that firms use private in-house meetings to disseminate negative news to mutual funds with relatively large ownership and, as a result, experience lower stock price volatility. This result suggests that managers may prefer to disclose negative developments to select institutional investors in a private setting – possibly to manage the news, minimize stock sell-offs and mitigate stock return volatility. In addition, we find mutual funds with large ownership tend to receive preferential treatment in private in-house meetings. These influential investors tend to: (i) interact more often with top management, (ii) attend more exclusive meetings; and (iii) have longer meetings with hosting firms. Finally, we find that mutual funds who attend private in-house meetings tend to make more informed trading decisions compared to investors who do not attend. Overall, our results suggest that mutual funds get preferential treatment depending on their ownership level, and hosting firms strategically organize their private in-house meetings to smooth stock return volatility.