Friend or foe: On a common shareholder relationship between mutual funds and public companies

Shu Lin, Shu Tian and Lu Zheng

Journal of Financial Markets, 2022, vol. 58, issue C

Abstract: We examine a novel business tie between mutual funds and public firms in China via a common shareholder (CS) relationship, in which a fund management company (FMC)'s shareholder also has a substantial stake in a public company invested by this FMC. The CS relationship may give connected funds an information advantage about the company over non-related funds. Meanwhile, mutual funds may engage in investment activities that help support stock prices of its CS-connected companies. Empirical evidence supports the superior information hypothesis but not the price support hypothesis. The holdings of CS-connected FMCs significantly predict subsequent stock returns. Moreover, such superior information is related to company fundamentals rather than short-term corporate events.

Keywords: Mutual funds; Information advantage; Stock returns; Portfolio decisions; Price support (search for similar items in EconPapers)
JEL-codes: G1 G11 G23 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:58:y:2022:i:c:s1386418121000549

DOI: 10.1016/j.finmar.2021.100673

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