Bank-affiliation and Information Leakage around Earnings Announcement: Evidence from Turkish REITs

This paper examines whether the bank-affiliated brokerage houses actively use the private information they possess about their affiliated publicly traded real estate investment trusts (REITs) around earnings announcements in Borsa Istanbul (BIST) between 2005 and 2015. The legal framework surrounding Turkish Real Estate Investment Trusts makes it particularly interesting to investigate the secondary market implications of the information asymmetry between majority and minority shareholders within BIST. We propose bank affiliation as a potential mechanism for disseminating private information about the official quarterly earnings announcements for the first time in the literature by assigning exogenous classifications across different investor types at high frequency. Our results indicate a substantial informed trading activity passing through bank-affiliated brokerage houses around earnings announcements, especially with the increase in earnings (when the announcement carries good news). Through intraday panel regressions, we also document that private information attributed to trades submitted through affiliated brokerage houses significantly enhances market quality by increasing future liquidity and reducing future volatility levels, whereas private information percolated through unaffiliated brokerage houses demand liquidity and increases volatility, reducing overall market quality.