Abstract
Post-earnings announcement drift (PEAD) is a market anomaly that contradicts the efficient market hypothesis, which assumes that all publicly available information is reflected in security prices. This study uses multivariate regression analysis to examine the effect of disclosing related-party transactions on PEAD. The empirical results show that greater related-party transactions increase the magnitude of PEAD. This positive association is more pronounced in Korean chaebol firms than in non-chaebol firms. The results suggest that investors have difficulty understanding earnings news of chaebol firms involved in related-party transactions due to their unique and complex corporate governance structure. This study contributes to the literature by showing that there is high information asymmetry between firms and outside investors regarding related-party transactions in chaebol firms; as a result, investors underreact to firms’ earnings information.
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