DP19391 Information Aggregation: Evidence from Lockdown of Subsidiaries
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.
