Corporate Disclosure Quality and Institutional Investors' Holdings During Market Downturns

We find that transient institutions, characterized by diversified portfolios with high turnover, are attracted by the larger liquidity and increase their holdings in firms with higher quality of financial statements and thus boost these stock prices during market downturns. Therefore, transient institutions are helping hands in periods with possibly urgent needs of financing. This effect increases after the implementation of Reg FD, suggesting that these institutions rely more on the quality of financial statements after selected disclosure is no longer available. Moreover, we also find that the average effect of disclosure quality on transient institutions' holdings increases after Reg FD, whereas this effect declines sharply for dedicated institutions, characterized by low turnover and more concentrated holdings.