IDEAS home Printed from https://ideas.repec.org/a/aoj/ajeaer/v4y2017i2p106-120id236.html
   My bibliography  Save this article

Why are the Performances of Business Groups Different? A Case Study of Formosa Plastics Group and Far Eastern Group

Author

Listed:
  • Yu-Wei Lan
  • Dan Lin
  • Lu Lin

Abstract

This study examines the difference in performances of two business groups, Formosa Plastics Group and Far Eastern Group, under the impact of financial tsunami (2007.10.29~2017.8.10). The aim of this study is to help investors understand the operating model of business groups and use the herding effect to enhance the trading performance in financial markets. The empirical evidence shows that for the Formosa Plastics Group, the news impact curve (based on EGARCH model) including the leading company is flatter when the news impact is less than zero (that is, negative news impact) than the news impact curve excluding the leading company. In contrast, the news impact curve of the Far Eastern Group is steeper when the leading company is included. Moreover, when the leading company is included as an endogeneous variable in the model as a filter for the program trading simulation, results show that investors can profit from the Formosa Plastics Group. Therefore, business groups that include the leading company have lower risks. It is beneficial to the stability of the market trading by incorporating the leverage effect of the leading company in business groups. On the contrary, the leading company of the Far Eastern Group does not have such an effect. The absolute profits and the increment of performance are both lower than that of the Formosa Plastics Group. The results suggest that the diversification strategy of Far Eastern Group is worse than the vertical integration strategy of the Formosa Plastics Group. The implication is that investors should carefully choose the business group for investment if they are to utilize the herding effect in investment.

Suggested Citation

  • Yu-Wei Lan & Dan Lin & Lu Lin, 2017. "Why are the Performances of Business Groups Different? A Case Study of Formosa Plastics Group and Far Eastern Group," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 4(2), pages 106-120.
    • Handle: RePEc:aoj:ajeaer:v:4:y:2017:i:2:p:106-120:id:236
    as

    Download full text from publisher

    File URL: http://asianonlinejournals.com/index.php/AJEER/article/view/236/213
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aoj:ajeaer:v:4:y:2017:i:2:p:106-120:id:236. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sara Lim (email available below). General contact details of provider: http://asianonlinejournals.com/index.php/AJEER/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.