Information Transfers among Coowned Firms
39 Pages Posted: 20 Mar 2011 Last revised: 27 Apr 2015
Date Written: November 15, 2012
We study how information about one firm transmits to otherwise unrelated firms sharing the same major blockholder. Using information on US firms over the 2001–2008 period, we show that the financial conditions of these firms signal the controlling ability of the owner and therefore indirectly affects the quality of the firms in which the owner has a major stake. Bad news on credit quality in coowned firms raises the firm’s credit risk. Our results are robust to instrumental variables estimation where we instrument the changes in credit risk of coowned firms by the natural disaster events in the counties of coowned firm headquarters.
Keywords: information disclosure and transfer, blocks, cost of debt, comovement, bad news, market transparency
JEL Classification: G32, G33
Suggested Citation: Suggested Citation