Business Groups and Risk Sharing around the World

Tarun Khanna and Yishay Yafeh

No 2002-8, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: We use a new database from fifteen emerging markets as well as from prewar and modern Japan to examine the popular view that business groups - ubiquitous in most emerging markets - facilitate risk sharing by smoothing the performance of affiliated firms. We replicate existing results on risk sharing by Japanese keiretsu, find evidence of risk sharing in some other countries (e.g. Korea, Thailand), and very limited evidence of "liquidity smoothing" in one country, India. However, in most countries, our estimates of risk sharing are usually not statistically significant. Tests of two-dimensional first-order-stochastic-dominance suggest that the Japan result - that group affiliated firms have both lower levels of operating profitability and lower standard deviations of operating profitability - does not generalize to most emerging markets. We also find no correlation between the extent of capital market development and the extent of risk sharing provided by business groups. The popular view of the importance of risk sharing in business groups is thus not validated by our analysis.

Pages: 63 pages
Date: 2002-09
Note: This Version: May 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13883/wp2002-8a.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:hitcei:2002-8

Access Statistics for this paper

More papers in CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Reiko Suzuki ( this e-mail address is bad, please contact ).