Information transfers among co-owned firms

Massimo Massa and Alminas Zaldokas

Journal of Financial Intermediation, 2017, vol. 31, issue C, 77-92

Abstract: We study how lenders in blockheld firms exploit the information on the other holdings of equity blockholders to learn their attitude toward creditors. In the presence of the conflict of interest between lenders and equityholders, information on how blockholders behave in the other firms they control provides the lenders with key information about potential blockholder behavior. We test this hypothesis using data on US public firms over the 2001–2008 period. We show that the financial conditions of these co-owned firms affect how lenders value other firms in which the owner has a major stake. Bad news on credit quality in co-owned firms raise the firm's credit risk. Our identification is based on the instrumental variables estimation where we instrument the changes in credit risk of co-owned firms by the natural disaster events in the counties of co-owned firm headquarters.

Keywords: Information transfer; Blocks; Cost of debt; Comovement (search for similar items in EconPapers)
JEL-codes: G32 G33 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:31:y:2017:i:c:p:77-92

DOI: 10.1016/j.jfi.2016.11.002

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