Disclosure Incentives When Competing Firms Have Common Ownership

64 Pages Posted: 4 Mar 2019 Last revised: 29 Jul 2019

See all articles by Jihwon Park

Jihwon Park

City University of NY, Baruch College, Zicklin School of Business

Jalal Sani

University of Illinois at Urbana-Champaign

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Hal D. White

University of Notre Dame

Date Written: February 12, 2019

Abstract

This paper examines whether common ownership – i.e., instances where investors simultaneously own significant stakes in competing firms – affects voluntary disclosure. We argue that common ownership (i) reduces proprietary cost concerns of disclosure, and (ii) incentivizes firms to “internalize” the externality benefits of their disclosure for co-owned peer firms. Accordingly, we find a positive relation between common ownership and disclosure. Evidence from cross-sectional tests and a quasi-natural experiment based on financial institution mergers help mitigate concerns that our results are explained by an omitted variable bias or reverse causality. Finally, we find that common ownership is associated with increased market liquidity.

Keywords: Disclosure, Common Ownership, Externalities, Propreitary Costs, Market Liquidity

JEL Classification: D62, D82, G34, M41

Suggested Citation

Park, Jihwon and Sani, Jalal and Shroff, Nemit and White, Hal D., Disclosure Incentives When Competing Firms Have Common Ownership (February 12, 2019). Journal of Accounting & Economics (JAE), Vol. 67, No. 2-3, pp. 387-415, April-May 2019, Available at SSRN: https://ssrn.com/abstract=3333451

Jihwon Park

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

Jalal Sani

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Nemit Shroff (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main St.
E62-679
Cambridge, MA MA 02142
United States
6173240805 (Phone)

HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=51407&co_list=F

Hal D. White

University of Notre Dame ( email )

389C Mendoza College of Business
University of Notre Dame
Notre Dame, IN 46556
United States
574-361-3809 (Phone)

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