Are Investors Aware of Ownership Connections?

Are Investors Aware of Ownership Connections?

Edith Ginglinger, Camille Hebert, Luc Renneboog

Series number :

Serial Number: 
525/2017

Date posted :

September 05 2017

Last revised :

February 09 2018
SSRN Share

Keywords

  • Ownership Structures • 
  • corporate complexity • 
  • myopia surprise earnings announcements • 
  • business groups • 
  • conglomerates • 
  • inattention • 
  • post-earnings announcement drift • 
  • market frictions

We examine the market reactions to earnings announcements within a parent-subsidiary ownership structure. We find that the parents’ investors react to all announcements within the group either immediately or with delay, whereas subsidiaries’ investors only react to their own firm’s announcements, ignoring predictive information released by the parent.

Multiple announcements within a group lead to enhanced transparency for parents’ investors, who benefit from detailed information on the origin of their firm’s earnings. In contrast, subsidiaries’ investors appear unaware of ownership links, and behave as inattentive investors. Inattention is worsened by geographical diversification of affiliated firms and by indirect ownership, but cannot be explained by strategic timing of the disclosure of earnings surprises, day-of-theweek effect or seasonality, internal capital markets, or synergy-related explanations across industries. Institutional investors do not seem to be smarter at understanding group structures, with the exception of active investors owning shares in both parent and subsidiary companies.

Authors

Real name: 
Edith Ginglinger
Real name:
Camille Hebert