Essays in Empirical Finance: Common Ownership Linkage
thesisposted on 01.08.2020, 00:00 by Haesung Kim
This dissertation consists of two empirical essays that study issues related to common ownership. The first essay provides empirical evidence of return predictability across common ownership linked firms. A common ownership momentum-based long-short strategy earns a significant average monthly abnormal returns of 78 basis points from July 1982 to June 2017. This return predictability is distinct from the previously known industry, customer-supplier, standalone- conglomerate momentum, or technology lead-lag effects. A flow-based explanation can account for the observed return predictability with the common ownership-linked returns affecting capital flows to institutional portfolios and such expected flow-induced trading influencing stock returns. In addition, the return predictability is more pronounced for focal firms with less attention from investors and more limits to arbitrage. The second essay investigates the peer effect of common ownership-linked firms on corporate dividend and investment decisions. We first show that common ownership peer firms are influential in determining U.S. firms’ dividend yield and investment capital ratio. Such an effect is distinct from the previously known industry peer effects, more pronounced among more connected firms and firms facing higher uncertainty. Overall, these findings indicate that firms imitate their peers to maintain interest from institutional investors, and/or firms mimic their peers to deal with uncertainty in their decision making.