Connected Firms and Investor Myopia
CentER Discussion Paper Series No. 2017-037
51 Pages Posted: 22 Sep 2017
Date Written: September 21, 2017
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: Suggested Citation