Conglomerates, multinational corporations and business groups are non-exclusive forms of complex firms. Often organized as corporate networks, complex firms control a myriad of entities connected through ownership links. We investigate whether these parent-subsidiary links within corporate networks lead to more transparency as investors receive more detailed information coming from different entities, or to more opacity when investors are unable to comprehend the connections between entities of the firm. We identify parent-subsidiary ownership structures where both parent and subsidiary are publicly listed and we examine the share price reactions to information releases by the various entities of the corporate network. We find that parent’s investors benefit from enhanced transparency when the parent announces its earnings first, whereas subsidiaries’ investors are mostly unaware of ownership links.

Discussant
Xia Shuo (Erasmus University Rotterdam)