Is There Information Content in Information Acquisition?

In this study, we examine whether investors' actions to acquire accounting information are predictive of future firm performance because these actions partially reveal investors' private expectations of this performance. Using a database of EDGAR downloads, we find some evidence that information acquisition of accounting reports by EDGAR users is, on average, predictive of future firm performance. We then determine the identity of the EDGAR user and examine whether different users' private expectations will be relatively more predictive of subsequent performance. We find that the information acquisition activities of more sophisticated institutional users (e.g., hedge funds, investment banks) are more strongly associated with future performance than are those of less sophisticated retail users. Finally, we find that information acquisition by sophisticated institutions is a leading indicator of their equity holdings. In summary, this study provides evidence of predictive information embedded in sophisticated investors' actions to acquire accounting information.