The relationship insurance role of financial conglomerates: Evidence from earnings announcements

Jiun-Lin Chen, Gary C. Sanger and Wei-Ling Song

Journal of Corporate Finance, 2019, vol. 58, issue C, 505-527

Abstract: This paper uses earnings announcements to analyze the trading behavior and associated price impacts of institutions that have a lending or underwriting relationship with client firms and also hold client firms' shares. Buying support from relationship institutions mitigates the negative impact of earnings surprises on client firms' stock prices, predicts subsequent negative earnings surprises, and is also associated with less selling by independent institutions holding the same firms' shares. Price reactions for firms without relationship institutions are significantly larger. Price support from relationship institutions appears to help resolve uncertainty accompanying clients' temporary earnings shocks, thus reducing noise in the capital markets.

Keywords: Institutional trading; Banking relationships; Price support; Earnings surprises; Momentum (search for similar items in EconPapers)
JEL-codes: G12 G14 G21 G24 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:58:y:2019:i:c:p:505-527

DOI: 10.1016/j.jcorpfin.2019.06.006

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