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Information Aggregation: Evidence from Lockdown of Subsidiaries

Author

Listed:
  • Hamed, Allaudeen
  • Massa, Massimo
  • Ni, Zhenghui
  • Zhou, Zhou

Abstract

We study the impact of subsidiaries on the information environment of the firm using a natural experiment: the pandemic-triggered, localized lockdowns of subsidiaries. We find that the randomized lockdowns of subsidiaries enhanced price informativeness, improved analyst forecast precision and increased trading and profitability of short-sellers. At the same time, these lockdowns reduce the informational advantage of insiders, leading to a decline in their trades. The combined effect of these factors ultimately results in an overall increase in stock liquidity. Our findings challenge the conventional wisdom, revealing an unexpected impact of the firm's organizational structure on informational efficiency. Specifically, firms with more localized information (via subsidiaries) are less informational efficient.

Suggested Citation

  • Hamed, Allaudeen & Massa, Massimo & Ni, Zhenghui & Zhou, Zhou, 2024. "Information Aggregation: Evidence from Lockdown of Subsidiaries," CEPR Discussion Papers 19391, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19391
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    More about this item

    Keywords

    Information; Liquidity; Analysts; Insiders; COVID-19;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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