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Do other firms’ stock price crashes affect corporate investment decisions within the business group: Evidence from Korean Chaebols

Author

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  • Zhu, Mengzhen
  • Shin, Hyun-Han

Abstract

This research investigates the nexus between stock price crashes and subsequent investment behavior within business conglomerates, specifically Korean Chaebols. Utilizing an extensive dataset of affiliated firms from 2005 to 2020, we find that stock price crashes in one firm negatively influence the investment activities of its affiliated counterparts within the same Chaebol. The evidence elucidates spillover effects and heightened risk aversion among these firms, particularly in volatile market conditions. These findings underscore the imperative for vigilant risk management and proactive investment strategies to counteract the cascading impact of stock price crashes within Chaebol ecosystems.

Suggested Citation

  • Zhu, Mengzhen & Shin, Hyun-Han, 2024. "Do other firms’ stock price crashes affect corporate investment decisions within the business group: Evidence from Korean Chaebols," Finance Research Letters, Elsevier, vol. 62(PB).
    • Handle: RePEc:eee:finlet:v:62:y:2024:i:pb:s1544612324002447
    DOI: 10.1016/j.frl.2024.105214
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