Private Subsidiaries’ Information Disclosure and the Cross-Sectional Equity Returns of Public Parent Firms

61 Pages Posted: 18 Nov 2019 Last revised: 30 Dec 2020

See all articles by Turan G. Bali

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business

Zilin Chen

Singapore Management University - Lee Kong Chian School of Business

Jun Tu

Singapore Management University - Lee Kong Chian School of Business

Ran Zhang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: December 30, 2020

Abstract

We investigate the impact of potential information hiding originated from private subsidiaries on the future returns of their public parent firms. We find a significantly positive link between private subsidiaries' information disclosure (PSID) and the cross-section of future equity returns of public parent firms. The economically and statistically significant PSID premium of 0.60% per month is not explained by established factor models and is stronger for stocks that receive less investor attention and that are costlier to arbitrage. Consistent with investor underreaction hypothesis, PSID premium reflects slow diffusion of firm information into stock prices rather than compensation for risk.

Keywords: Private subsidiaries; public parent firms; limited attention; limits to arbitrage; return predictability.

JEL Classification: G10, G11, G12, G14

Suggested Citation

Bali, Turan G. and Chen, Zilin and Tu, Jun and Zhang, Ran, Private Subsidiaries’ Information Disclosure and the Cross-Sectional Equity Returns of Public Parent Firms (December 30, 2020). Available at SSRN: https://ssrn.com/abstract=3482349 or http://dx.doi.org/10.2139/ssrn.3482349

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: https://sites.google.com/a/georgetown.edu/turan-bali

Zilin Chen

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore
Singapore

Jun Tu (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
#04-01
Singapore, 178899
Singapore

Ran Zhang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, 200030
China

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