Internal capital markets and return predictability in complex ownership firms

Alternative Title

Return Predictability in Firms with a Complex Ownership Network

Author

Angelica GONZALEZ, University of Edinburgh
Sergei SARKISSIAN, University of Edinburgh
Jun TU, Singapore Management UniversityFollow
Ran ZHANG, Shanghai Jiaotong University

Publication Type

Working Paper

Version

acceptedVersion

Publication Date

5-2021

Abstract

Using global cross-ownership data, we find return predictability for four possible cases in ownership-linked firms (OLFs): subsidiary−parent, parent−subsidiary, subsidiary−subsidiary, and parent−parent. A long/short portfolio strategy sorted by the lagged monthly returns of OLFs yields the monthly Fama-French six-factor alpha of 79−113 bps. These results, which are observed only after the establishment of ownership links, are not subsumed by industry or cross-country momentums or by alternative inter-firm relations, including customer−supplier links, strategic alliances, common boards, and shared analyst coverage. The OLF return predictability is best explained by active internal capital markets—a mechanism unique to firms with a complex ownership network.

Keywords

Decision-making commonality, Earnings surprises, Investors’ inattention, Limits to arbitrage

Discipline

Corporate Finance | Finance and Financial Management

Research Areas

Finance

First Page

1

Last Page

71

Embargo Period

5-20-2021

Citation

GONZALEZ, Angelica; SARKISSIAN, Sergei; TU, Jun; and ZHANG, Ran. Internal capital markets and return predictability in complex ownership firms. (2021). 1-71.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6711

Copyright Owner and License

Authors / SKBI

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Comments

Presented at American Finance Association Annual Meeting AFA 2019, January 4-6, Atlanta

Additional URL

https://doi.org/10.2139/ssrn.3559099