Information Transfer in the Common Shareholder Relationship : Mutual Fund Company and Its Invested Firms

This paper identifies a novel channel of information transfer in a common shareholder (CS) relationship, in which a shareholder of a fund management company (FMC) also has a substantial stake in a listed company held by the FMC. We find that the holdings of common shareholder–connected FMCs exhibit stronger predictability in stock returns over horizons from subsequent 3 months to 24 months than those of unconnected FMCs. Further investigation examines the nature of the information transmission. Evidence suggests that the transmitted information is not a leak of non-public material corporate events but more related to long-term corporate fundamental information. An investment strategy based on the common shareholder relationship realizes an annualized return of at least 3.33%. Overall, the common shareholder relationship benefits fund investment, especially in the long run