Connected Firms and Investor Myopia

CentER Discussion Paper Series No. 2017-037

51 Pages Posted: 22 Sep 2017

See all articles by Edith Ginglinger

Edith Ginglinger

Université Paris-Dauphine, PSL Research University

Camille Hebert

University of Toronto - Rotman School of Management

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: September 21, 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 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.

Keywords: Ownership Structures, Corporate Complexity, Myopia Surprise Earnings Announcements

JEL Classification: G14, G32

Suggested Citation

Ginglinger, Edith and Hebert, Camille and Renneboog, Luc, Connected Firms and Investor Myopia (September 21, 2017). CentER Discussion Paper Series No. 2017-037. Available at SSRN: https://ssrn.com/abstract=3040576 or http://dx.doi.org/10.2139/ssrn.3040576

Edith Ginglinger (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Camille Hebert

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Luc Renneboog

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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