Publication Type

Working Paper

Version

publishedVersion

Publication Date

4-2022

Abstract

Theory suggests that stock price guides managers in corporate decisions as managers learn from price. We reason that cross-ownership lowers information processing costs and increases industry specialization, improving revelatory price efficiency (Bond, Edmans, and Goldstein 2012). Consistent with our expectations, we find that a firm’s investment-q sensitivity increases as its cross-ownership increases, suggesting that cross-ownership facilitates managerial learning from price and thus investment efficiency. We strengthen the causal inference by conducting a difference-in-differences analysis using financial institution mergers as an identification strategy. We also find that the increase in the investment-q sensitivity associated with cross-ownership is more pronounced for firms with a lower propensity of voluntary disclosure, for firms with managers of less private information, and for firms with higher stock liquidity. Overall, these results suggest that cross-ownership can induce more efficient corporate decisions by helping investors better produce private information and transmit it to stock price.

Keywords

cross-ownership, institutional investors, managerial learning, feedback effect of prices

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

First Page

1

Last Page

54

Identifier

10.2139/ssrn.3682404

Publisher

SSRN

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.2139/ssrn.3682404

Download

Share

COinS