The relationship insurance role of financial conglomerates: Evidence from earnings announcements

Document Type

Article

Publication Date

10-1-2019

Abstract

This paper uses earnings announcements to analyze the trading behavior and associated price impacts of institutions that have a lending or underwriting relationship with client firms and also hold client firms' shares. Buying support from relationship institutions mitigates the negative impact of earnings surprises on client firms' stock prices, predicts subsequent negative earnings surprises, and is also associated with less selling by independent institutions holding the same firms' shares. Price reactions for firms without relationship institutions are significantly larger. Price support from relationship institutions appears to help resolve uncertainty accompanying clients' temporary earnings shocks, thus reducing noise in the capital markets.

Publication Source (Journal or Book title)

Journal of Corporate Finance

First Page

505

Last Page

527

This document is currently not available here.

Share

COinS