Connected Firms and Investor Myopia

Edith Ginglinger, Camille Hébert, Luc Renneboog

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Abstract

Conglomerates, multinational corporations and business groups are non-exclusive forms of complex firms. Often organized as corporate networks, complex firms control a myriad of firms connected through ownership links. We investigate whether parent-subsidiary links within corporate networks enhance
transparency because the investors in a listed parent company and in its listed subsidiary now receive information about these two firms from each these firms. Alternatively, the corporate network complexity could bring about more opacity when investors are unable to detect the connections between the corporate
entities. We examine the share price reactions to information releases by various entities of the corporate network. We find that parent’s investors benefit from enhanced transparency in case the parent announces surprise earnings first, whereas subsidiaries’ investors seem mostly unaware of ownership links and are
myopic.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages51
Volume2017-037
Publication statusPublished - 21 Sep 2017

Publication series

NameCentER Discussion Paper
Volume2017-037

Keywords

  • Ownership structures
  • corporate complexity
  • myopia surprise earnings announcements
  • business groups
  • conglomerates
  • inattention
  • post-earnings announcement drift
  • market frictions

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    Ginglinger, E., Hébert, C., & Renneboog, L. (2017). Connected Firms and Investor Myopia. (CentER Discussion Paper; Vol. 2017-037). CentER, Center for Economic Research.