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Common ownership and the spillover effect of market reaction: Evidence from stock exchange comment letters

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  • Wang, Qijian
  • Zhou, Kaiguo

Abstract

Currently, there is a debate on the impact of common ownership. Some researchers find common ownership leads to increased cooperation and decreased competition among common-held firms while other studies show that there is no robust evidence showing the effect of common ownership. In this paper, by applying the receipt of stock exchange comment letters as an exogenous shock for common-held firms, we find the following results on the capital market's reaction to comment letters on common ownership: 1) there exists a significant spillover effect of the market reaction. Not only the firms receiving comment letters experience negative abnormal returns, but also their cross-held firms; 2) the spillover effect is caused through the mechanism of corporate governance as the effect is more pronounced for firms with poor corporate governance; 3) there exists heterogeneous characteristics on the spillover effect for different firms since the state-owned enterprises are less likely to be affected by the comment letters. The findings can provide regulators, investors, and managers a better understanding on the role of common ownership.

Suggested Citation

  • Wang, Qijian & Zhou, Kaiguo, 2022. "Common ownership and the spillover effect of market reaction: Evidence from stock exchange comment letters," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:pacfin:v:73:y:2022:i:c:s0927538x22000245
    DOI: 10.1016/j.pacfin.2022.101729
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    References listed on IDEAS

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    Cited by:

    1. Zhu, Xiuli & Li, Xiaohui & Zhou, Kexin & Yu, Yuying, 2023. "The impact of annual reports transparency and comment letters on the cost of debt: Evidence for China," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    2. Ziwei Wang & Chunfeng Wang & Zhenming Fang, 2024. "Learning from Failures of Co-owned Firms: Common Ownership and Information Disclosure Fraud," Journal of Business Ethics, Springer, vol. 195(1), pages 95-119, November.
    3. Wang, Shuangjin & Zhang, Xiaoqian & Cebula, Richard J. & Foley, Maggie, 2024. "Cross-shareholding, Managerial capabilities, and Strategic risk-taking in enterprises: A game or a win-win?," Finance Research Letters, Elsevier, vol. 62(PB).
    4. Xunan Feng & Dengxi Wei, 2024. "Political ranking in hierarchy and receipt of a comment letter: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 277-307, March.
    5. Lu, Chao & Zhu, Tianqi & Xia, Xiaoxue & Zhao, Ziying & Zhao, Yiwen, 2024. "Common institutional ownership and corporate green investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 1123-1149.

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    More about this item

    Keywords

    Common ownership; Market reaction; Comment letters; Corporate governance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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