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Business Groups and Risk Sharing around the World

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  • Tarun Khanna
  • Yishay Yafeh

Abstract

Researchers commonly assume that business groups, a ubiquitous organizational form in emerging markets, permit affiliated firms to share risk by smoothing income flows and by reallocating money from one affiliate to another in times of distress. This view has received support in the literature on Japanese keiretsu. To examine the generality of these findings worldwide, we amass a new data set on business groups in 15 emerging markets, and couple this with historical and modern data from Japan. Our results, using multiple estimation techniques, corroborate the existing evidence on risk sharing within the Japanese keiretsu. In addition, in some emerging markets such as Brazil, Korea, Taiwan and Thailand, we find evidence suggesting that group affiliation is associated with a 20 – 30 percent reduction in the standard deviation of operating returns. We also find evidence of substantial â€

Suggested Citation

  • Tarun Khanna & Yishay Yafeh, 2000. "Business Groups and Risk Sharing around the World," Economics Series Working Papers 2001-FE-02, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:2001-fe-02
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    Cited by:

    1. Ishtiaq AHMAD & Syed Zaheer ABBAS KAZMI, 2016. "A Financial Performance Comparison Of Group And Non-Group Firms In Textile Sector Of Pakistan," Network Intelligence Studies, Romanian Foundation for Business Intelligence, Editorial Department, issue 8, pages 143-150, December.
    2. Pranab Bardhan, 2005. "Institutions matter, but which ones?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(3), pages 499-532, July.
    3. Ishtiaq P. Mahmood & Will Mitchell, 2004. "Two Faces: Effects of Business Groups on Innovation in Emerging Economies," Management Science, INFORMS, vol. 50(10), pages 1348-1365, October.
    4. Deniz Ilalan, 2014. "Profitability Effects of Owning a Group Affiliated Media Institution: An Emerging Market Case," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 1(2), pages 17-24.
    5. Saul Estrin & Martha Prevezer, 2010. "The Role of Informal Institutions in Corporate Governance: Brazil, Russia, India and China Compared," Working Papers 31, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    6. Singh, Ajit & Singh, Alaka & Weisse, Bruce, 2002. "Corporate governance, competition, the new international financial architecture and large corporations in emerging markets," MPRA Paper 53665, University Library of Munich, Germany.
    7. Miwa, Yoshiro & Ramseyer, J. Mark, 2006. "The Fable of the Keiretsu," University of Chicago Press Economics Books, University of Chicago Press, number 9780226532707, October.

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