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Connected Firms and Investor Myopia

56 Pages Posted: 5 Sep 2017  

Edith Ginglinger

Université Paris Dauphine

Camille Hebert

Université Paris Dauphine; Tilburg University

Luc Renneboog

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

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Date Written: September 1, 2017

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 entities connected through ownership links. We investigate whether parent-subsidiary links within corporate networks lead to more transparency as investors receive more detailed information coming from different entities, or to more opacity when investors are unable to detect connections between the various corporate entities. We identify parent-subsidiary ownership structures where both parent and subsidiary are listed and examine share price reactions to information releases by various entities of the corporate network. We find that parent’s investors benefit from enhanced transparency when the parent announces its surprise earnings first, whereas subsidiaries’ investors seem mostly unaware of ownership links and are myopic.

Keywords: Ownership structures, corporate complexity, myopia surprise 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, Connected Firms and Investor Myopia (September 1, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 525/2017. Available at SSRN: https://ssrn.com/abstract=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

Université Paris Dauphine ( email )

Place de Lattre de Tassigny
Paris, 75116
France

Tilburg University ( email )

P.O.box 90153
Tilburg, 5000 LE
Netherlands

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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