Premium
Spillover Effects of Capital Expenditure Announcements Within Business Groups
Author(s) -
Chen IFen,
Chang ShaoChi
Publication year - 2020
Publication title -
british journal of management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.407
H-Index - 108
eISSN - 1467-8551
pISSN - 1045-3172
DOI - 10.1111/1467-8551.12379
Subject(s) - spillover effect , diversification (marketing strategy) , stock price , stock (firearms) , monetary economics , corporate group , capital expenditure , economics , business , demographic economics , finance , marketing , microeconomics , corporate governance , mechanical engineering , paleontology , series (stratigraphy) , engineering , biology
Using the capital expenditure announcements of Taiwanese business group affiliated firms, this study examines whether the group diversification and ownership structure influence intragroup spillover effects. We find that the stock price reactions of the announcing firms are positively associated with both the stock price reactions and the post‐announcement long‐term performance of their non‐announcing group peers. More importantly, the evidence shows that this positive spillover effect weakens for business groups associated with a pyramidal ownership structure. The evidence supports the conjecture that principal–principal conflicts play an important role in moderating the spillover effects in a business group. The findings further show that the spillover effects are stronger during periods of financial crises. Finally, in the 3‐year period following announcements, the non‐announcing group members experience declining industry‐adjusted performance.