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.
All Science Journal Classification (ASJC) codes
- Business, Management and Accounting(all)
- Strategy and Management
- Management of Technology and Innovation