Information Sharing As Source Of Synergy Creation In Corporate Diversification: An Empirical Analysis Of Korean Banking Industry

Abstract

This paper deals with one of the major issues in strategy and finance research streams i.e. the strategic use of valuable information among different business units of diversified firms. In particular, the paper studies the effect of information sharing between a commercial bank and a securities firm under the same financial group on analysts’ forecasts using Korean data over the period of 2000-2008. We find that the mean (median) EPS forecast error issued by independent analysts is 2.71% (1.34%) while that issued by bank-affiliated analysts is 2.09% (1.02%). The difference remains statistically significant even after controlling for company and analyst characteristics in multivariate analyses. The results are consistent with superior information hypothesis in that the bank-affiliated analysts make more accurate and conservative recommendations using the information generated by the commercial banks about the companies covered. This evidence suggests the efficiency of related-type business diversification which tends to foster the exchanges of value-generating information among business units.