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How does ownership concentration exacerbate information asymmetry among equity investors?

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  • Byun, Hae-Young
  • Hwang, Lee-Seok
  • Lee, Woo-Jong
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    Abstract

    This study investigates the association between ownership concentration and information asymmetry between informed and uninformed investors, and explores several mechanisms that mitigate such a relation. Using a large sample of Korean firms whose ownership structure is highly concentrated, we find that the degree of information asymmetry increases with ownership concentration. We also find that ownership concentration is positively associated with information asymmetry via an increase in the relative amount of informed trading. This effect more than overcomes the unexpected decrease in the frequency of private information events. Furthermore, while neither institutional investors nor internal corporate governance systems help alleviate the negative effects of ownership concentration, analyst following reduces the information asymmetry associated with ownership concentration. Our findings are robust to endogeneity concerns, additional control variables, and an alternative use of empirical proxies.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 19 (2011)
    Issue (Month): 5 (November)
    Pages: 511-534

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    Handle: RePEc:eee:pacfin:v:19:y:2011:i:5:p:511-534

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Concentrated ownership Probability of informed trading Information asymmetry Analyst following Chaebol;

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    Cited by:
    1. Hwang, Lee-Seok & Kim, Hakkon & Park, Kwangwoo & Park, Rae Soo, 2013. "Corporate governance and payout policy: Evidence from Korean business groups," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 179-198.
    2. Chang, Chiao-Yi, 2013. "The market response of insider transferring trades and firm characteristics in Taiwan," Emerging Markets Review, Elsevier, vol. 16(C), pages 131-144.

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