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Does Stock Price Crash of Firms in the Same Business Group Cause Stock Price Crash in Other Member Firm? Evidence from Korea

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  • Sewon Kwon
  • Taejin Jung
  • Hee-Yeon Sunwoo
  • Sang-Giun Yim

Abstract

This article examines the spillover of stock price crash within business groups. Using Korean business group data, we find that the crash risk of a firm is positively associated with the crash risk of other member firms in the same business group. We also find that crashes spread but do not arise simultaneously across firms within a business group. Further analyses reveal that the documented association is stronger in firms with more inter-company transactions and those with lower market-to-book ratios. Our article contributes to the literature by suggesting that the consequence of opportunistic behaviors of controlling shareholders (i.e., stock crash of a member firm) spills over within business groups.

Suggested Citation

  • Sewon Kwon & Taejin Jung & Hee-Yeon Sunwoo & Sang-Giun Yim, 2019. "Does Stock Price Crash of Firms in the Same Business Group Cause Stock Price Crash in Other Member Firm? Evidence from Korea," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(7), pages 1566-1592, May.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:7:p:1566-1592
    DOI: 10.1080/1540496X.2018.1562891
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    Citations

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    Cited by:

    1. Huma Fatima & Abdul Haque & Muhammad Usman, 2020. "Is there any association between real earnings management and crash risk of stock price during uncertainty? An evidence from family-owned firms in an emerging economy," Future Business Journal, Springer, vol. 6(1), pages 1-12, December.
    2. Ducret, Romain, 2021. "Investors' perception of business group membership during an economic crisis : Evidence from the COVID-19 pandemic," FSES Working Papers 524, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    3. Hongmin Jin & Lu Wang & Zuoping Xiao & Hung‐Gay Fung, 2023. "What firm risk factors drive bank loan pricing and other terms? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 2985-3010, September.
    4. Sanghak Choi & Hail Jung, 2021. "National Tax Service Connection and Stock Price Crash Risk: Evidence from Korea," Annals of Economics and Finance, Society for AEF, vol. 22(1), pages 83-107, May.
    5. 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).

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