Internal capital markets and predictability in complex ownership firms

Ran Chang, Angelica Gonzalez, Sergei Sarkissian and Jun Tu

Journal of Corporate Finance, 2022, vol. 74, issue C

Abstract: Using global cross-firm ownership data, we find that both stock returns and cash-flow news of ownership-linked firms predict focal firm's returns for all types of ownership structures: subsidiary−parent, parent−subsidiary, subsidiary−subsidiary, and parent−parent. This effect, observed only after the establishment of cross-firm ownership, is not subsumed by focal firm or industry momentum, or alternative inter-firm relations, including customer−supplier links and shared analyst coverage. Our findings are explained by mispricing due to internal capital markets – a mechanism unique to complex ownership firms. Higher internal capital market activity among ownership-linked firms also induces larger investments and lower external financing of the focal firm.

Keywords: Capital expenditures; Earnings surprises; Market inefficiency; Multinational enterprises; Ownership network (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119922000621
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:74:y:2022:i:c:s0929119922000621

DOI: 10.1016/j.jcorpfin.2022.102219

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().