Are Investors Aware of Ownership Connections?

53 Pages Posted: 5 Sep 2017 Last revised: 7 Feb 2018

Edith Ginglinger

Université Paris Dauphine

Camille Hebert

Tilburg University; Université Paris Dauphine

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 2018

Abstract

We examine the market reactions to earnings announcements within a parent-subsidiary ownership structure. We find that the parents’ investors react to all announcements within the group either immediately or with delay, whereas subsidiaries’ investors only react to their own firm’s announcements, ignoring predictive information released by the parent. Multiple announcements within a group lead to enhanced transparency for parents’ investors, who benefit from detailed information on the origin of their firm’s earnings. In contrast, subsidiaries’ investors appear unaware of ownership links, and behave as inattentive investors. Inattention is worsened by geographical diversification of affiliated firms and by indirect ownership, but cannot be explained by strategic timing of the disclosure of earnings surprises, day-of-theweek effect or seasonality, internal capital markets, or synergy-related explanations across industries. Institutional investors do not seem to be smarter at understanding group structures, with the exception of active investors owning shares in both parent and subsidiary companies.

Keywords: Ownership structures, corporate complexity, inattention, unawareness, myopia, earnings announcements, business groups, conglomerates, inattention, post-earnings announcement drift, market frictions

JEL Classification: G14, G32

Suggested Citation

Ginglinger, Edith and Hebert, Camille and Renneboog, Luc, Are Investors Aware of Ownership Connections? (February 1, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 525/2017. Available at SSRN: https://ssrn.com/abstract=3030652 or http://dx.doi.org/10.2139/ssrn.3030652

Edith Ginglinger

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

HOME PAGE: http://sites.google.com/view/edithginglinger/home

Camille Hebert

Tilburg University ( email )

P.O.box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://sites.google.com/site/camhebert/

Université Paris Dauphine ( email )

Place de Lattre de Tassigny
Paris, 75116
France

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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