A comparison of the impact of largest family shareholders and institutional blockholders on informed trading: evidence from Hong Kong

The difference between the influence of largest family shareholders and institutional block-holders in the price discovery process is investigated, using a sample of firms listed on the Hong Kong Stock Exchange. Largest family shareholders are positively related to the overall informed trading level, but not to the structure change of informed trading. In contrast, institutional block-holders are not related to the overall level of informed trading but to the change in its structure. More informed trading tends to have a worse structure since it includes negative aspects of information. Largest family shareholders promote price discovery in positive strategic private information but their dominating effects hamper the process due to negative opportunistic effects, which leads to a loss of firm valuation. In contrast, institutional block-holders do not change the overall transparency of the information environment but do effect the structure of informed trading, increasing economic efficiency. There is more equality in the availability of opportunistic negative private information for the overall market, but only more availability of strategic positive private information to informed traders, which leads to a positive impact on firm valuation. Finally, investors put a bigger discount on the firm-level component of private information risk than overall private information risk, which contains market wide private information. They also put a bigger premium on the expected signal that indicates a good structure of informed trading